The new Mills-led Government inherited an economy characterised by severe macroeconomic instability which manifested itself in, among other things, a record budget deficit estimated at 14.5 percent of GDP at the end of 2008.

The deficit of 2008 was primarily due to spending excesses that have come to be associated with hotly contested presidential and parliamentary elections. These exacerbated an underlying persistent deterioration of fiscal discipline which the Centre for Policy Analysis (CEPA) had drawn attention to since 2006 (see Chart 1 below) - what CEPA described as a phenomenon of "stubbornly high and widening fiscal deficits".

The new Government also had to grapple with 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. Consequently, an important risk to the stabilization programme agreed with the IMF under the three-year Poverty Reduction and Growth Facility (PRGF) Arrangement, therefore, was "the potential downside risks from the global macroeconomic situation, with implications for real GDP growth, macroeconomic stability and financing prospects (from public and private creditors) for Ghana" (ibid, paragraph 140, emphasis added).

A Tale of Two Cities

The Government was, therefore, confronted with a policy dilemma referred to as "A Tale of Two Cities" by CEPA: on the one hand the self-induced financial crisis called for a containment of government spending; whilst,

on the other hand, the inhospitable global situation required the provision of massive governmental support in the form of 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.

The 2009 Budget: Strategy of Growth with Macroeconomic Stability

Government, therefore, 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.

However, 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 CEPA's Assessment and Critique of the 2009 Budget Statement and Economic Policy, the Centre had contended that the economic programme for 2009 with its social democratic principles (and with the explicit provision of GH¢42 million in support) - presented and approved by Parliament - was consistent with a strategy of "Growth with Macroeconomic Stability" in which the growth objective was accorded more prominence.

The Move to a Framework of Macroeconomic Stabilisation

Subsequent to the approval of the Budget by Parliament, 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 into following a strategy of a "comprehensive programme of macroeconomic stabilisation and reform" . In contrast, this new programme - which is contained in a new PRGF Arrangement with the IMF for the three-year period July 2009-June-2012 - is more consistent with a strategy of "Macroeconomic Stability with Growth", i.e. one that is heavily slanted towards stabilisation rather than pro-poor growth.

During the 2008 electioneering campaigns, many promises were made involving large future expenditure outlays by all political parties at a time when the objective reality (though unknown) rather called for policy packages geared more towards spending restraint. To paraphrase the World Bank:

"The lack of transparency and accountability has provided an enabling environment for the deterioration of fiscal management. The overshooting of the budget deficit went largely unnoticed till late in 2008. Indeed, poor access to information in a timely manner prevented large deviations from planned expenditures being brought to the public eye, and even to the notice of political parties, international financial institutions (IFIs) and development partners (DPs)" (see World Bank, Economic Governance and Poverty Reduction Credit, EGPRC, June 2009, paragraph 67, p. 23 - emphasis added).

As a result, the programme agreed with the Breton Woods Institutions (BWIs) was faced with "political feasibility risks" (ibid, paragraph 140, p. 42 - emphasis added).

The 2009 Revised Budget/PRGF Arrangement

In the 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.

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