Working Paper WP/BOG-2014/09 AN ASSESSMENT OF FISCAL SUSTAINABILITY IN GHANA Johnson Asiama, Nana Akosah, Emmanuel Owusu-Afriyie Bank of Ghana September 2014 The views expressed in this paper are those of the authors and do not necessarily represent those of the Bank of Ghana. Working Papers describe research in progress by the author(s) and are published for comments and to stimulate further debate Abstract This study examines the sustainability of fiscal policy in Ghana by exploring government’s reaction to rising public debt accumulation via the estimation of a fiscal reaction function. Our findings suggest that government’s fiscal behaviour is consistent with the intertemporal budget constraint, but the fiscal adjustment appears to be very low. In particular, evidence of significant fiscal pressures in recent years persists, largely driven by fiscal excesses during election cycles. To ensure long term fiscal sustainability, the study supports deliberate policies such as fiscal anchors and a Fiscal Responsibility Act that could help to curtail expenditure overruns especially during election cycles, promote less expensive sources of borrowing and engender strong coordination between fiscal and monetary authorities. JEL Classification Numbers: E62, H6 Keywords: fiscal sustainability, fiscal reaction function, intertemporal budget constraint, fiscal anchors Authors’ e-mail address: johnson.asiama@bog.gov.gh . nana.akosah@bog.gov.gh , emmanuel.afriyie@bog.gov.gh .