Promoting Fiscal Discipline: Achieving a Necessary Good

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Editorial note: The first action in the language of the commitment was split into two separate milestones 4. The PFM bill was designed to address persistent weaknesses and promote discipline, transparency and accountability in the management of public funds.

The FRL bill will introduce permanent rules of fiscal discipline.

It also contains a requirement for managing fiscal risk by improving the development and execution of fiscal policy and providing a clear budget process map. International Conference: The conference intends to consider international best practices within a Ghanaian context of enacting and implementing the law.

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Prior requirements to the adoption of ECO for all WAMZ countries include attaining a set of primary and secondary criteria, including single digit inflation rate and a fiscal deficit of no more than four percent of the GDP. Therefore, it is necessary to hold an international conference to establish a common fiscal and monetary policy that will establish a fiscal ceiling for all member states of the regional body. While sharing best practices for fiscal discipline could contribute toward building support for the FLR, this milestone is of unclear relevance to OGP values.

Pass FRL: The government tends to overspend and borrow money from central banks, therefore creating inflationary trends in the country. FRL would set an important legal basis for ensuring prudent management of public spending to avoid budget overruns.

Fiscal Discipline

From the language of the commitment, it is unclear whether the bill will advance OGP values of better access to information or public accountability. Nonetheless, the potential impact of the law could be transformative in instilling discipline in government spending. Because the language of the commitment does not specify whether actors outside of government would be invited to the workshop, the relevance of this milestone to OGP values is unclear.

Within this review period, one milestone was being worked on by the government, and two were not started. International Conference: According to the respondent in charge of implementation of the law, the international conference was not carried out. This legislation was passed on 3 August, , after the period of implementation under consideration, but this updated completion level will be reflected in the end-of-term report.

A press statement issued by MOF said with the passage of PFM, fiscal management shall be carried out in accordance with best practices and standards.

On Promoting Fiscal Discipline: The Role of Exchange Rate Regimes, Fiscal Rules and Institutions

MoF also gave assurances that timely fiscal information shall be made available to enable effective scrutiny of fiscal policy and public finance management. Consultations on Need for FRA: While MoF did not organize a two-day consultative workshop on the content of the bill, it held a consultative process to build a national consensus on the bill.

The respondent at MoF provided evidence of scanned PDF copies of invitation letters for a series of meetings on the bill. The respondent provided about sixteen different invitations letters on the consultation process. The meetings ranged from internal discussions within MoF to inter-sector meetings between heads of government institutions. Additionally, other meetings involved non-state actors like development partners, research institutions, academia, and CSOs.

MoF met the following groups to solicit views and comments on the first draft of the PFM Bill: all the heads of the public institutions on 3 November ; CSOs and academia on 4 November ; and all development partners on 5 November Moving forward, MOF could give progress reports on fiscal responsibility, including debt management. However, within the specific context of Ghana opinion is divided on whether or not there is need for a stand-alone law on Fiscal Responsibility. The commitment to enact a Fiscal Responsibility Law FRL to introduce permanent rules of fiscal discipline and mitigate fiscal risk was not completed and thus carried forward from the previous action plan.

The FRL is part of the Public Financial Management PFM bill that was designed to address persistent weaknesses and promote discipline, transparency, and accountability in the management of public funds.

Fiscal Openness (GH0017)

Specific milestones were the organization of an international conference to discuss best practices and establish a common fiscal and monetary policy for the West Africa Monetary Zone, passage of the FRL, and the holding of a two-day consultative workshop on the need for a Financial Responsibility Act. Completion at midterm was limited for this commitment.

The international conference did not hold. The Ministry of Finance MoF did not organize a two-day consultative workshop on the content of the bill. However, it provided evidence of a consultative process to build a national consensus on the bill that included internal discussions within the MoF, inter-sector meetings between heads of government institutions, and meetings with development organizations, research institutions, academia, and civil society organizations CSOs. For more information, please see the —17 IRM midterm report. International Conference: This milestone was not started.

The researcher was unable to obtain evidence from the media that the international conference was held or was discussed in the reporting period. However, as implemented so far, the government has not improved the quality or quantity of information released to the public, neither has it put in place any public-facing accountability mechanism. As it stands, the passage of the FRL may have represented an end in itself as opposed to a means to greater financial transparency.

Types of government budget: What are the three types of government budgets?

One outstanding limitation is that the PFM framework is contained in several separate laws and policies, [13] making it hard to understand how they interact. This could be addressed in future interventions. The milestones for this commitment as captured in the —19 national action plan NAP largely sought to build on the passage of the PFM by pursuing laws and structures needed to support its implementation. The incomplete milestone of the international conference on best practices was not carried forward.

GH, , Anti-Corruption Institutions. GH, , Beneficial Ownership. GH, , Fiscal Transparency. GH, , Extractive Industries.

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GH, , Capacity Building. GH, , Right to Information. GH, , Public Participation. GH, , Open Data. While these considerations can be used to argue in favour of either monetary or fiscal policy, the recent record of monetary stabilization tends to be better, especially in industrial countries. Fiscal policy can play a more central role when the scope for a monetary policy response to variations in output is limited.


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This would be the case if a country has a fixed exchange rate or it is a member of a monetary union, when an independent central bank places more emphasis on low inflation than output stabilization, where nominal interest rates are close to their zero lower bound, or given that a principal objective in a world of free capital mobility especially in emerging market economies and developing countries is to contain the impact of volatile capital flows on the exchange rate. In each of these cases, fiscal policy has to bear the burden of output stabilization. However, countercyclical fiscal policy may not always be an option.

Even if countercyclical fiscal policy is appropriate, there is an issue as to its impact on aggregate demand. There are a number of factors that could contribute to fiscal multipliers being quite small: Estimates of fiscal multipliers indeed tend to be on the low side. Short-term multipliers average about half for taxes and one for spending in industrial countries. Estimates of fiscal multipliers for emerging market economies and developing countries are few and far between.

However, there is little evidence to suggest that they are any larger than in industrial countries.

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Hemming, Kell, and Mahfouz report the available estimates. There are also instances where fiscal tightening may have had an expansionary impact on the economy that is, fiscal multipliers are negative. These have a number of features:. Where countercyclical fiscal policy is appropriate, the prevailing wisdom is that it should be implemented first and foremost through automatic stabilizers.

At the very least, they should be relied on to respond to normal variations in aggregate demand. Automatic stabilizers derive from the built-in responsiveness of tax revenue and spending on unemployment compensation, other social insurance programmes, and income transfers to changes in output, which means that they can take fairly quick effect and are self reversing. An emphasis on automatic stabilizers can be formally integrated into fiscal targeting by shifting the focus to structural or cyclically adjusted fiscal indicators.

Targeting such an indicator would allow the unadjusted fiscal balance to vary with output such that fiscal cushions are built up by applying fiscal restraint during cyclical upswings good times ; these cushions can then be used to stimulate aggregate demand during cyclical downturns bad times. Discretionary fiscal policy therefore has a potential role to play. It can be used to bolster weak automatic stabilizers or dampen strong ones, and to offset non-cyclical influences on the fiscal position for example, inflation, exchange rate movements, and variations in commodity prices.

It can also be held in reserve to respond to larger aggregate demand shocks. Furthermore, discretionary tax and spending measures have a clear advantage in that they can be tailored to stabilization needs, in particular if directed to where they will have the largest impact on spending for example, to low-income households.

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