The Mills-led NDC government assumed office in early January 2009 and was faced with an environment of macroeconomic instability which manifested itself in, inter alia, a huge budget deficit estimated at 14.5 percent of GDP at the end of 2008-including nearly 1.0 percent of GDP in respect of commitments and payments arrears from previous years.

Although the macroeconomic difficulties of 2008 were primarily due to election year spending excesses they, nonetheless, exacerbated an underlining persistent deterioration of fiscal discipline which the Centre for Policy and Analysis (CEPA) had noticed and drawn attention to since 2006 - a phenomenon which the Centre has described in various presentations as "stubbornly high and widening fiscal deficits".

Against this background many high spending-related promises were made by all political parties during the 2008 electioneering campaigns at a time when reality and objectivity rather called for policy packages geared more towards economic stabilisation.

The new Government also had to grapple with the adverse developments on the international scene - the global financial turmoil and the consequent world economic melt down. As a result it found itself in the rather unenviable position of being in a home-grown financial crisis in the midst of a global financial crisis and recession.

The Government was, therefore, confronted with a policy dilemma referred to as "A Tale of Two Cities" by CEPA: on the one hand the own-inflicted financial crisis called for a reduction in government spending whilst, on the other hand, the inhospitable global situation required the provision of massive governmental support in the form a hefty package of fiscal stimulus to re-ignite the ailing economy- a counter-cyclical path chosen by most other countries with relatively better managed and more sound domestic economies.

A Strategy of Growth with Macroeconomic Stability

Not surprisingly, the government made the attainment of macroeconomic stability an important goal in its maiden Budget presented to Parliament on March 5, 2009 with an objective to reducing the broad budget deficit to 9.4 percent of GDP at end-December 2009 from the end-December 2008 outcome of 14.5 percent of GDP. This notwithstanding, and consistent with the social democratic agenda of the Mills-led Government, the 2009 Budget also acknowledged the critical importance of broad-based economic growth in the fight against poverty and in improving the living conditions and welfare of all Ghanaians. Indeed, in its "Assessment and Critique of the 2009 Budget Statement end Economic Policy", CEPA had contended that the economic programme for 2009 with its social democratic principles (and with the explicit provision of GHc42 million in support) - presented and approved by Parliament - was consistent with a strategy of "Growth with Macroeconomic Stability" in which the growth objective is accorded more prominence.

The Move to a Pro-cyclical Stabilisation Programme

In a letter dated January 7, 2009, the World Bank Ghana Office alerted the incoming Administration of the severity of the domestic financial crisis and rushed it to "request additional and extraordinary assistance from both the World Bank and the IMF

In the ensuing dialogue subsequent to the submission of the letter, the World Bank succeeded in mobilising the IMF, the Development Partners (DPs), and the new Mills Administration to move from the strategy of "Growth with Macroeconomic Stability" that informed the 2009 Budget Statement into following a strategy of a "comprehensive programme of macroeconomic stabilisation and reform" - a programme consistent with a strategy of "Macroeconomic Stability with Growth", i.e. one that is heavily slanted towards stabilisation rather than pro-poor growth - which is contained in a new PRGF Arrangement with the IMF for the 3-year period July 2009-June-2012.

The Revised Budget and the new PRGF Arrangement

In its mid-year review of the 2009 Budget Statement and Economic Policy to Parliament on August 25, 2009, the Government also presented a revised Budget for the consideration of and approval by Parliament. In a technical sense the revised Budget sought to receive the blessing of Parliament to implement the new PRGF Arrangement with the IMF. Additionally, the revised Budget took into account events and developments which, according to the Minister of Finance and Economic Planning, were not available to Government at the time of presentation of the original Budget in March.

Broad Fiscal Targets
The revised 2009 Budget maintained the target for the overall fiscal deficit at the 9.4 percent of GDP set in the original Budget. The target includes a planned settlement of outstanding commitments and payments arrears equivalent to 3.1 percent of GDP. This deficit target is also preserved in the PRGF Arrangement with the IMF where it is made a programme conditionality and labelled a key quantitative criterion.

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