A case of fiscal complacency:(2) “Offset” of arrears continues more subtly

 1. Introduction

Part II discusses the unconventional “offsets” of arrears since presentation of the 2017 Budget and, since 2018, exclusion of financial sector bailout and capitalization costs from the main Budgets and Reviews to show impressive fiscal results. Instead, the Ministry of Finance (MOF) hides the financial costs in Appendices and Memoranda to Budgets and Reviews.

Hence, in the 2019 Mid-Year Review, Appendices 4 and 5 (p57-60) include the 2018 arrears of Ghc858.5 million but, in Table 2 (p10), this amount is “offset” by increasing total expenditure from Ghc59,171.7 million to Ghc60,030 million. It also alters the Provisional Outturn and, therefore, Table 2 and Appendix 4 and 5 have different 2018 fiscal outcomes.

  1. Nature of fiscal “offsets”

The explicit “offsets” in 2017 have become subtle from 2018. Instead of using positives and negatives to make arrears neutral, the subtle method makes neutralizes arrears by equating the budget deficit to the fiscal balances (on commitment and cash basis)—and, even bolder, applying the approach to discrepancies and exceptional bailout costs. Both explicit and subtle methods distort the fiscal outcomes since, prior to 2017, they would have neutralized items such as single-spine (wage) overruns, subsidies, HIPC/MDRI flows, and divestiture receipts.

  1. 2018 arrears “offset” against expenditure estimates

As Tables 1A (Main Budget) and 1B (Appendix) show, the neutralization of arrears, discrepancies, or exceptional financial sector bailout and capitalization costs results in incredible fiscal consolidation. In the 2019 Mid-Year Review, the offset of arrears was against revised expenditure estimates “above-the-line”. The zeros denoted as “Other Outstanding Expenditure Claims” show the effect of the one-time significant offset that occurred in FY2017.

Table 1A: Effecting “offsets” through increase in expenditures (Table 2)

Table 1B: Effecting “offsets” through increase in expenditures (Appendix 4)


In summary, Tables 1A and 1B show the main differences in the Revised Budget and the Provisional Outturn for deficits and expenditures as follows:

  • increase in the revised expenditure estimates in Table2 of the Review to Ghc60,030.0 million, compared to the Appendix 4 provision of Ghc59,171.7 million; and
  • the difference, being the “offset” is equal to the arrears estimate of Ghc858.0 million.

These are tantamount to a retroactive increase in expenditures that Parliament approved in the 2019 Appropriation Act and to reporting different estimates and outcomes in two parts of the same Review to the House to support the Supplementary (revised) Budget and Appropriation.

  1. Financial Sector Bailout and Capitalization Costs (Appendix and Memo Items)

Tables 2 sets fiscal conventions aside by excluding the bailout and capitalization costs from the main part of the Mid-Year Review (Table 2, p.10) to report impressive fiscal outcomes.

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Table 2: Fiscal Table excluding financial sector restructuring costs

This continues with the new budget or fiscal convention since 2017. In contrast, Tables 3A and 3B (based on Appendix 4), show the full effect of financial sector costs on the budget deficit, fiscal balances, and financing—as worsening the effects of “offsets” discussed earlier.

Table 3A: Fiscal Table including financial sector restructuring costs

Table 3B: Fiscal Table including financial sector restructuring costs

The more realistic fiscal outcomes are significantly different from those conveyed by the Minister to the nation in Budget Speeches and main Budgets and Reviews. Note that the outcomes affect “financing” as well as the fiscal balances.

  • The Overall Fiscal Balance, including banking sector bailout and capitalization costs, increases from 3.9 percent to 7.3 percent.
  • Financing in 2018 increases from Ghc11 billion to Ghc 13.2 billion (Revised Budget) and from Ghc11.7 billion to Ghc21.9 billion (Provisional Outturn).

Tables 2 and 3 show a clear lack of fiscal judgement or prudence. The 2017 and 2018 Budgets exclude provisions for bank bailout costs, despite significant ESLA flows and the first restructuring in 2016—involving Ghc250 million cash injection and Ghc2.2 billion refinancing.

  1. Origin of offsets in 2017 Budget

As Table 4(a) shows, the distortion of fiscal tables and identities to “offset”, not pay, Ghc5 billion of the end-2016 Ghc7 billion liability started in the same 2017 Budget.

Table 4(a): Revenue, expenditures, and deficit (FY 2016 to 2018)

Source: MOF Websites and Budgets

The approach used was very awkward and unconventional as it set aside the distinction between the “cash” and “commitment” or “accrual” parts of the fiscal tables.

  • A non-cash or accrual entry (i.e., Other Outstanding Claims) reflects in the “cash” section of the fiscal tables.
  • It is (a) a standalone item used to increase the deficit without making an arithmetic difference between Deficits 1 and 2; (b) which relates to only 2016—not reflecting in past or future fiscal tables; and (c) with different effects in the Budget and MOF Website.

Consequently, the expenditure-to-GDP ratios (old and new series) in Table 4B shows a high “2016 Budget Deficit” while commitment items differ in the 2017 Budget and website.

Table 4B: Percent of Deficit and Fiscal Balances to GDP

  • The “offset” item that has no arithmetic relevance in the fiscal tables is as high as 3 percent of GDP (2.3 percent new GDP basis)

Tables 4(C) to 4(E) make the “offset” items relevant by adding or subtracting them to show the real impact of the anomalies on the fiscal balances on commitment and cash basis.

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Table 4(c): Deficit, outstanding arrears, and fiscal balances (FY2016 to FY2018)

  • Given their “positive” impact, the budget deficit—identical to overall fiscal balance on commitment basis—of Ghc17.4 billion (Ghc18.2 billion on Website) is higher than overall balance on cash basis—Ghc13.1 billion and Ghc16.9 billion (on the Website).

Table 4(d): Adjusted Overall Fiscal Balances-to-GDP (Old and New Basis)

  • If the administration had done the “positive” offsets arithmetically, the budget and fiscal balances would have been lower, at 7.9 percent deficit instead of 10.4 percent (on old GDP basis) and a significantly lower 6.1 percent (not 8.1) on the new GDP basis.
  1. Comparing FY2016 to FY2017 and FY2018

It is important to note that the “offsets” were designed specifically to make a negative impact on the Provisional Outturn for end-2016 (compiled by the new administration in the 2017 Budget upon taking over as the government).

  • The unconventional positives from FY2016 (Ghc2715 or Ghc2598 million) changed to “negative” (Ghc 3742 million) in 2017 Budget—in line with acceptable fiscal practice.
  • This feat in reducing arrears requires a huge negative offset of Ghc6,340 million or Ghc6.3 billion (and Ghc6,457 million in 2017 Budget) in a single fiscal year.
  • Even more incredibly, the acclaimed huge amount of Ghc7 billion (net) arrears is reduces to a provisional outturn of Ghc1.7 billion in 2017 and projected to fall to Ghc858 million in 2018 (and unchanged to date in the 2019 Mid-Year Review).

Curiously, while the “arrears” carried forward from 2016 to 2017 in the same 2017 Budget was only approximately Ghc2 billion, the government continues to state that the end-2016 fiscal balance as 10.3 percent (old GDP basis) or 6.5 percent (new basis).

  1. Conclusion

Since 2017, various articles have raised serious issues with the practice of equating the budget deficit or fiscal balances (commitment) to financing. It excludes critical items in the exceptional cost category, such as the current bailout and capitalization costs. In the past, this could have applied equally to divestiture receipts, clearance of subsidies that crystallize as contingent liability and arrears, and single-spine (wage) overruns and absorption of the cost of the power crisis between 2013 and 2016. The practice is less explicit as MOF appears to develop more subtle approaches that boldly neutralize arrears, discrepancies, and exceptional costs.

It seems even higher fiscal authorities such as the IMF and Development Partners (DPs) are grudgingly accepting this unconventional form of presenting the fiscal outcomes. This does not result in fiscal clarity and discriminates against fiscal disclosures from the past.

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