Speaking at a public lecture on the depreciation of the cedi against major international currencies, Dr Bawumia said a Fiscal Responsibility law would require that governments declare and commit to the fiscal policy that can be monitored.
It would also include fiscal rules such as those governing election year spending and provisions for transparency and sanctions, including sanctions on the Executive.
The immediate passage and enforcement of a Fiscal Responsibility Act that has bite would be important in this regard if it is supported by political will, he said.
He said governments pronouncements to this effect, as well as its follow through actions would attract investors and inspire confidence in the economy.
Dr Bawumia said while government needed to restore fiscal discipline as a matter of urgency that alone would not be enough, adding that restoring the confidence of investors and financial markets required that the country put together a policy framework that would provide assurance that fiscal excesses would not happen in the future.
Successive governments have acquired the skill for restoring fiscal discipline for short periods only to engage in fiscal indiscipline again, especially in election years. Ghana must therefore put in place an effective legal framework to make sure that the politicians on all sides are discouraged from wreaking havoc on the poor people of Ghana for their own selfish interest, he said.
He said aside the Fiscal Law, the country must also consider the establishment of a political neutral and independent fiscal institution to hold the Executive accountable through rigorous analysis of the budget and fiscal risk controls, commitments and expenditures.
To enhance the confidence of the markets in monetary policy while at the same time strongly preserving the independence of the Bank of Ghana, Dr Bawumia suggested the amendment of the Bank of Ghana Act to introduce an accountability mechanism for breaches of the Act.
Currently, with the Bank of Ghana Act when breaches are made nothing happens, he said.
In addition to increased transparency, the amended Act should provide for regular reporting by the Central Bank Governor to Parliament about the fulfilment of its responsibilities under the Act, especially on the issue of Central Bank financing of government.
We could essentially give a lot of confidence to the financial market if we change the legal framework for fiscal and monetary discipline, he said.
Dr Bawumia called for a serious discussion about the foreign exchange regime that is optimal for Ghana to keep the cedi stable for a long-time.
"If government commits to live by a fiscal framework, the country could consider a currency board regime. Whether we adopt a fixed or floating exchange rate regime the same amount of discipline would be required to keep the cedi stable", he said.
The economist suggested that to restore confidence in the banking system and a degree of certainty in the foreign exchange regime, the Bank of Ghana should immediately reverse the new directives of force conversion of dollars into cedis.
These directives, he said, were based on a rather wrong view that dollarization was responsible for the depreciation of the cedi. "International experience show that regulations such as those issued by the Bank of Ghana tend to be short-lived as market participants find ways to circumvent them."
Dr Bawumia said government should also deal effectively with corruption in the management of public finances and should immediately undertake a biometric base payroll audit to eliminate ghost workers, as well as implement a biometric based payment system for all public sector workers to deal with fraud in government's payroll.