Fiscal Responsibility Act must limit its suspension period in case of emergency – IEA

The Institute for Economic Affairs (IEA) is calling for the inclusion of a provision in the Fiscal Responsibility Act for limiting the period for which it can be suspended in case of emergency.

This is to avoid the possibility of indefinite suspension as it happened since 2020.

It stated in its analysis of the 2025 Budget that the decision to review the Fiscal Responsibility Act by tightening some of the responsibilities and the sanctions regime is in the right direction.

It also welcomed the decision to legislate a debt ceiling of 60%, describing it as a reflection of IEA’s longstanding recommendation.

The IEA has previously proposed adding another provision requiring all borrowed funds to be used exclusively for investment.

According to the economic think tank, it would not only foster economic growth but would ensure that loans are used for productive purposes, thereby generating enough resources for future debt repayments and avoiding the perennial debt crises.

Cost-Cutting Measures is Good

The IEA also welcomed the cost-cutting initiatives in the budget, including relating to the size of government and associated spending on goods and services, among others.

According to the economic think tank, these will result in a significant reduction in total expenditure (cash) as a ratio of Gross Domestic Product (GDP) for 2025 to 19.2% from 23.7% for 2024. However, capital expenditure (CAPEX) as a ratio to GDP remains relatively low at 2.4% in 2025 (compared with 2.5% for 2024).

“The IEA has consistently lamented about the inadequacy of CAPEX in our budgets, a situation that continues to be a drag on growth”.

Indeed, it concluded that the growth projection of 4.0% of GDP for 2025, which is even lower than that of 5.7% for 2024, is below the country’s potential, given the availability of excess resources and capacities waiting to be tapped.