The end of Terkpernomics …What legacy does he leave behind?
From January 7, 2017, the name Seth Emmanuel Terkper will no longer be associated with the Finance Ministry; his job was done the moment his party, the ruling National Democratic Congress, lost the December 7 polls to the New Patriotic Party (NPP).
Sworn into office on January 30, 2013, the outgoing Finance Minister is about one of the longest serving appointees under the John Mahama-led administration, which appeared fluid with loads of ministerial reshuffling.
The former Deputy Finance Minister during the late Mills’ administration was a safe pair of hands after the then newly-elected President John Mahama decided to do away with the astute Dr. Kwabena Duffuor. Terkper, as Deputy Minister, came across as a technocrat who separated economics from politics. And thus, his appointment was deemed a natural succession with no fuss.
But after 1,423 days in charge of the Ministry, Mr. Terkper will soon become history and will be relieved of the burden of having to stand more than two hours on his feet presenting government’s budget statement. Such an excruciating ordeal is a climax of myriad boring number-crunching budget preparatory meetings and discussions.
Nevertheless, Seth Terkper loved his job and went about it with all diligence and never hesitated to reach out to the media when the need arose, to clarify issues which sought to discredit him or his Ministry.
On Tuesday, December 20, 2016, he met the press – perhaps for the last time as Finance Minister. His mood was relatively subdued although one could tell from his voice he was willing to open up more about his tenure, except that as a member of the transition team he was constrained.
You would more often than not find Seth Emmanuel Terkper immaculately dressed in a two-piece suit as he went about his energy sapping job – often long hours of meeting with various groups – creditors, debtors, donors, aggrieved workers, cabinet meeting etc.
On the occasion of his last address, he showed up in a kaftan, a deviation from his beloved suits, ready to update the press on what he said was the state of the economy or rather the legacy of the economy under his watch for the 3 years, 10 months and 23 days.
The outgoing Finance Minister would, however, be remembered not so much for what he said in those meetings with the press, but the outcome of the decisions and policies the Ministry has taken under his watch.
There’s no doubt one of Terkper’s immediate legacies would be the IMF’s 3-year US$918 million Extended Credit Facility (ECF). No single act of the outgoing NDC government will impact the policies of the incoming NPP administration than the IMF bailout programme.
The IMF deal, signed last year, will end somewhere in 2018 and the incoming government, with all its audacious economic policies and promises, would find some conditionalities of the bailout programme to be too cumbersome and will sweat either to have them relaxed or seek to go around them.
The deal itself is a product of a tumultuous economic period which, in all sincerity, did not occur under Terkper’s direct watch, although he cannot be completely exonerated if one considers the fact that he was the Deputy Finance Minister when fiscal deficit ballooned to about 12 percent of GDP in the election year of 2012.
Before Terkper sent an SOS to the Washington-based lender, the government had been battling a huge wage bill which had weighed in on expenditure while severe fiscal and external imbalances, as well as power crises, dampened growth prospects in an economy that recorded 14 percent growth barely four years earlier.
Government’s own policies, which it had trumpeted as ‘homegrown,’ failed to arrest a rising fiscal deficit which had climbed to 11.6 percent in 2012 from a previous year figure of 4 percent, making the IMF intervention a must.
The deal, signed in April 2015, took seven months to negotiate and was billed to come with frontloading of fiscal consolidation to ultimately restore Ghana on the path of growth once more, in addition to giving “credibility” to government’s own policies.
Growth and deficit
In 2013, economic growth under Terkper’s watch was 7.3 percent but the economy wasn’t all too well, with the wage bill consuming more than half of the country’s tax revenues and a return to dumsor which hampered productivity of the private sector.
In the following year, there was general consensus that indeed the country was going through some challenges and the Senchi Economic Forum was organised as a way of looking for workable solutions to the myriad problems which included a twin deficit, power crises, rising interest payments and slowing economic growth.
The implementation of the Senchi Consensus did little to help growth, which fell to 4 percent. Having realised it lacked the wherewithal to implement fully the 22-point Senchi Consensus, government called on the IMF for ‘policy credibility’.
As expected, under the austere programme, growth in 2015 declined marginally to 3.9 percent. On the back of the coming on stream of new oil fields – Tweneboa Enyerra Ntomme (TEN) – growth was expected to rebound to about 5.4 percent this year.
This, however, now seems overly ambitious owing, largely, to disruption in oil production, especially at the Jubilee Fields.
Indeed, the IMF, in its latest World Economic Outlook published in October, revised downwards growth outlook for Ghana to 3.3 percent. Not even the 23,000-bpd produced by TEN and the marked improvement in power supply could engineer a reversal in the downward spiral of growth – moving from 14 percent in 2011 to a projected 3.3 percent in 2016.
Regarding deficit, Terkper deserves some credit from steering it from a high of 11.6 percent in 2012 to a projected 5 percent this year. Although he would have loved a faster pace of reduction, he would be content with what he has been able to achieve.
Debt vs Interest Payments
As at September this year, Ghana’s debt-to-GDP ratio stood at 67.4 percent, up from the 48.03 percent Mr Terkper inherited in 2013. It is worth noting that this debt level does not encompass the electioneering period which would significantly lead to a higher than projected debt level.
Whereas Terkper argues that the rate of debt accumulation has slowed down over the period, the IMF insists that Ghana still remains one of the countries in the High Risk of Debt Distress, a situation that highlights the nature of public debt, which stands at GH¢112 billion as September 2016.
The debt-to-GDP may have seen a decline but interest payments continue to be a drain on the country’s resources. This year alone, interest payment is estimated at GH¢10.5 billion, up from GH¢6.3 billion in 2014.
Having recognised the debilitating effects of rising debt, Terkper moved to pursue a debt management strategy which, amongst other things, sought to make Ghana’s debt sustainable. The strategy also saw the establishment of a sinking fund that will be used to pay mainly external debt to prevent costly bullet payment.
In 2007, Ghana made its debut on the Eurobond market when it sold a US$750 million bond at a yield of 8.5 percent – the first sovereign bond by a sub-Saharan African country. It took almost another six years for Ghana to return to the Eurobond market.
In his first ever budget in 2013, Terkper revealed his intention of borrowing US$1 billion from the Eurobond market, which he later got at a yield of 7.87 percent, a far better return than the debut bond.
One of the underlying factors that influenced the second bond issuance was the previous year’s yawning deficit of 11.6 percent, largely financed by domestic sources. The preoccupation of Terkper was to look for a means of refinancing the expensive credit government had made on the domestic market and the Eurobond became a cheaper source.
Also, with the attainment of lower-middle income status, access to concessional funds for development projects were fast dwindling and the Eurobond market further provided a cheaper source of funding.
After his first activity on the market, Terkper returned a year later to borrow another US$1billion, mainly to refinance maturing domestic debt, fund infrastructure as well as partly service the 2007 Eurobond.
There were two more Eurobond issuances under Terkper, the highlight being this year’s 5-year US$750 million bond at a rate of 9.25 percent, and the 2015, 15-year US$1 billion bond, sold at an interest rate of 10.75 percent.
In total, Mr. Terkper sourced US$3.75 billion from the Eurobond capital market.
That Seth Terkper is a consummate tax expert explains why under his reign a number of new taxes were introduced and old ones were expanded. One of the most unpopular tax decisions was that imposed on the importation of farm implements, condoms as well as that of fee-based financial services.
Although some of the taxes were repealed, others, like the Energy Sector Levies, VAT on domestic air fares, real estate, fee-based financial services, among others, did not go down well with a lot of citizens. These taxes cut across all sectors and had a biting effect on the profitability of businesses, a fact that the President-elect Nana Akufo-Addo promised to work on to the relief of the private sector.
Credit must, however, be given for the introduction of the Income Tax Act this year, to remove the narrow and distorted tax base of the old Internal Revenue Act. The new law contains some provisions of the old act while other sections were modified and new provisions introduced to make it easier for taxpayers to comply.
The Ghana Integrated Financial Management Information System (GIFMIS,) which was a key component of the Public Financial Management Reform Programme (PFRM), was Terkper’s baby; he never missed an opportunity to highlight its importance to the budgeting process.
GIFMIS, an integrated computerised financial management system, would serve as government’s official accounting system for budget preparation and implementation, accounting and financial reporting as well as cash and assets management in all Ministries, Departments and Agencies (MDAs) and also for Metropolitan, Municipal and District Assemblies (MMDAs).
Also, the passage of the Public Financial Management Act this year is something Mr Terkper can take pride in. Much as there were challenges regarding the PFMA, its passage is an achievement that Terkper would love to be remembered for.
The PFMA repeals the Financial Administration Act of 2003 and its amendment and the Loans Act of 1970. The law seeks to regulate the financial management of the public sector within a macroeconomic and fiscal framework, as well as define the responsibilities of persons entrusted with the management and control of public funds, assets, liabilities and other resources.
Success or failure?
It is fair to say Seth Terkper came in at a rather tough time, where he had to solve problems he did not create, such as a huge fiscal deficit.
He also had to deal with crumbling commodity prices, which hindered revenue inflows and crippled government at times.
Some of his decisions still remain unpopular, especially the tax measures which, rather than expand the tax base, deepened it much to the disappointment of the tax paying public.
For a man that came under pressure from both members of his party as well as from the opposition NPP, only posterity will judge Mr Seth Emmanuel Terkper, a man who has remained truly professional all throughout the turbulent times he has been in charge at the Finance Ministry.