Recent days have witnessed increasing public outcry about economic hardship and financial distress in Ghana. Many experts have largely attributed the situation to poor financial and fiscal management of the government. The diminishing fiscal space coupled with disturbing public debt level have been cited for the worsening economic situation in the country. On the contrary, the Minister of Finance insists that the economy is on the right path to recovery and growth. He admonished those with opposing view to be circumspect in order not to undermined the democracy. He further indicated that any interrogation of the fiscal performance should also consider the basis of accounting adopted by government, especially when comparison with the past years is concerned. The Minister provides the following fiscal information about the country:
GHc’billion Revenue 100 Expenditure (including interest expense) 180
Interest 50 Public debt 260 Capital expenditure 10 Wage Bill 63 Gross Domestic Product (GDP) 300
The Minister proposed strengthening the public sector accounting system by investing GHc10 billion in creating a robust public financial management system. However, the opposition condemned the proposal, stating that it is another way of misusing the scarce public financial resources and that the amount should be channelled into other pressing areas. The debate as to whether the economy is resilient or falling continues on the streets as well as the policy space of the country.
Required:
a) Compute the applicable fiscal indicators of the country to the extent allowed by the data supplied by the Minister of Finance. b) Based on the result obtained in question (a) above, would you support the position of the
experts or that of the Minister of Finance on the state of the fiscal economy of the country?
Provide sufficient evidence to support your stance. (12 marks)
c) Discuss how the application of cash basis and accrual basis of accounting will respectively affect the results you have obtained in question (a) above. d) Do you think the proposal of the Minister of Finance to invest heavily in building a robust public sector accounting system in the country is a right one? Explain. e) Assuming the Minister insists on going ahead with the proposal to invest in public sector accounting system, discuss four areas that you will recommend for applying the GHc10
billion and show how the amount should be allocated within these areas. (Total 40 marks)