The macroeconomics of public sector deficits: the case of Ghana

Roumeen Islam and Deborah L. Wetzel

No 672, Policy Research Working Paper Series from The World Bank

Abstract: Ghana's economic program after independence emphasized public investment and spending as the road to growth, a strategy that led to recurring fiscal deficits and declining growth. Since the 1984 Economic Recovery Program, Ghana's fiscal deficits have declined and the public sector has been rationalized. Average growth rates have become positive. The authors provide two different definitions of the fiscal deficit in Ghana. The first, more conventional approach aggregates components of the public sector, including the central government, the social security and national insurance trust, state-owned enterprises, and the cocoa marketing board. The second way looks at the total financing flows to the public sector. Data on the central government debt are supplemented with data on the claims of the central bank and banking system against state-owned enterprises and data on public external debt. The authors examine the ways Ghana chose to finance its deficits and how these affected the financial side of the economy. They found that : 1) the fiscal deficit has had only little effect on private consumption; 2) public sector investment in Ghana has mostly substituted for private investment; and 3) the fiscal deficit had a significant negative effect on the external side. The official real exchange rate tended to appreciate, the trade balance worsened, and the black market premium rose.

Keywords: Economic Stabilization; National Governance; Economic Theory&Research; Public Sector Economics&Finance; Banks&Banking Reform (search for similar items in EconPapers)
Date: 1991-05-31
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Citations: View citations in EconPapers (3)

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