Fiscal offsets or consolidation?(2) IMF Gh-exit peformance not realistic  

Part 1 used a simple fiscal table to explain that the current administration is achieving its “accelerated fiscal consolidation” through “offsets” of arrears in the fiscal framework and not actual payments. The payments may be taking place at a slower pace outside the framework while the “offsets”, which were explicit in 2016, were more subtle in 2017 and 2018. The latter approach does not show the budget deficit line in the fiscal tables and, thereby, equating the fiscal balance (commitment), not the fiscal balance (cash), with financing.

Secondly, we cited public statements by officials to show that MOF is owing over GH¢3 billion to SSNIT and an unspecified amount to NPRA and that this makes the provision for arrears in 2017-2019 inadequate. We argue that this short-term scenario does not fit into the MTEF assumptions on arrears, which stand at GH¢330 million (2017); GH¢1.55 billion (2020—an election year); and zero (0) in 2021-22.

The assumption of zero (0) arrears or commitments is unreal and has never happened in Ghana’s fiscal history. Consequently, this part starts with the unrealistic provisions made in the MTEF for settling liabilities in the near term. It continues by reiterating that the “offsets”, which are not new, started in 2016 by “offsetting” Ghc5 billion against the alleged GH¢7 billion arrears “overrun” that the Mahama administration was supposed to have bequeathed. Therefore, the net liability carried forward to 2017 was only Ghc2.3 billion.

Zero arrears in MTEF

The zero (0) arrears projection is unrealistic, given current poor revenue performance, and, at best, premature with even future oil revenues that are difficult to predict. The MTEF estimates in the 2019 Budget raise the bar on “offsets” with over-ambitious nominal targets that show impressive fiscal consolidation in 2021-22. In another “first” for this administration, Table 1 implies that there will be no MDA/MMDA pipeline expenditures to feed short-term arrears. This assumption is neither feasible nor realistic in a fiscal and physical context for managing multi-year contracts and supplies.

It is equally unrealistic for Ghana to achieve a significant turnaround to change current revenue shortfalls to surpluses to meet all the 2021-22 recurrent and capital expenditures, which include high levels of wage and debt service. In any event, we know better now, given the ongoing debate about the need to borrow. Therefore, what the nation needs is a return o debating our debt management strategies to make the borrowing sustainable.

 Table 1: Budget and MTEF projections for arrears

Removing the “offsets” from FY2016 fiscal data

Tables 5 and 6 show the origin of fiscal “offsets” from FY2016 (2017 Budget), involving the so-called “arrears” of GH¢7.3 billion. Table 5 shows an “offset” of GH5 billion arrears (i.e., Other Outstanding Claims—non-cash “liability”), awkwardly in the “cash” portion of the fiscal tables (line [c]). Given its large stand-alone nature, we presume the GH¢7.3 billion or GH¢5.0 billion “arrears” is part of the total of GH¢51.1 billion [line [b]—the largest single expenditure increase in two (2) decades. The second crude “offset” below-the-line (GH¢4,292.3m + GH¢743.3m = Gh¢5,035.6m) appears as “positive” arrears that are usually “negative” [h] and [i].

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Table 5: Reworked Fiscal Situation for 2016 as in 2017 Budget

Source: 2017 Budget, Fiscal Tables & own calculations

Source: 2017 Budget, Fiscal Tables & own calculations

Since all entries in Table 5 occurred in the 2017 Budget, it is absurd to reduce the fiscal balance in a Budget that Parliament was yet to approve for implementation. The “offset” means that “net arrears” carried forward from 2016 to 2017 is only GH¢2.3 billion, with gross deficit-to-GDP ratios reduced sharply. It led to the fiscal deficit (commitment) of 10.5 or 7.9 percent (cash) in 2016 reducing to 4.6 percent (commitment) or 6.5 percent (cash) in the 2017. As Table 6 shows, if GH¢5 billion reduces the end-2016 “arrears”, then it should reduce the deficit/GDP ratios to about 6.5 and 6.9 percent of GDP—and making the FY2017 targets of 4.6 percent (commitment) and 6.5 percent (cash) much “softer” than the authorities have been portraying.

Table 6: Memorandum items [percent of GDP]

The premise for adjustment is that the fiscal “offset” of (a) GH¢7 billion arrears falls outside the definition of “arrears” and, (b) that of GH¢5,035 million is “standalone” because it is embedded in total expenditure of GH¢51,125 million to make the offset effective. Other vital observations from Tables 5 and 6, relating to 2016 and 2017, include:

  • the 2017 Budget reverted to “conventional” mode, with a higher overall balance (cash) than overall balance (commitment) but changed to include “offsets” in the Debt Report as well as 2018 and 2019 Budgets;
  • the fiscal “identities” show in the original 2017 Budget (Table 4, lines [e] and [f] as well as lines [m] and [n]; and
  • the provisional 2016 expenditure includes the reversal of legitimate FY2017 transactions to 2016, thus violating the “cut-off”, “holiday”, and “next working day” rules.

Taking into account the sharp fall in crude oil prices in 2015 and 2016 (election year) and consequent fall in revenues that drove some SSA countries into recession, the fiscal deficits of 6.3 percent (commitment) and 6.9 (cash) are reasonable (lines [o] and [p]. Without the “offsets” the GH¢7 billion “arrears” would have increased the fiscal targets for FY2017 and made the performance less impressive.


It is necessary to reclassify the 2016 “explicit offsets” that reduced the GH¢7 billion “arrears” by GH¢5 billion in 2016 to derive the true fiscal balance. As explained in the 2017 Budget Guidelines and, as reproduced in the Auditor-General’s Report, the compilation was a shift to semi-accrual accounting, with entries in the GIFMIS Accounts Payable Module, to gain firmer control of budget overruns. The enactment of the Energy Sector Levies Act (ESLA) to take care of energy and road arrears makes the hiding of arrears unnecessary except to cover up for ambitious electoral promises that made the fiscal outlook frightening to the authorities.

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The structural move to accrual rules has suffered a major setback with the “implicit offset” approach in 2017 and 2018. It gives an artificially good account of the fiscal and primary balances but is inconsistent with, and postpones, the fiscal pain that comes with liability and debt management. The sudden shift to low and zero (0) MTEF arrears provision from 2020 to 2022 will worsen the fiscal situation and likely lead to more efforts at manipulation, as we move forward with our “Ghana-exit IMF” and the era of “Beyond Aid” agenda.

We must note that the attempts at compromising the fiscal rules involve other end-2016 controversial changes. These include the use of end-March 2017 exchange rate, instead of end-December 2016, to convert the foreign debt into local currency (cedis); and reversal of payments that were due in 2017 to add to 2016 arrears.

To reverse course, we must follow the PFM reform approach of putting the arrears that are below radar in the multi-year GIFMIS “Contract Database” and Accounts Payable Module. To complement this, we must prepare the Budget and Public Accounts on “grossed-up” and “semi-accrual” basis, under IPSAS standards and rules. The “offsets” may win short-term applause but will ultimately force us into a painful “arrears” clearance or liquidation plan, as was the case with the subsidies and wage overruns under the Single Spine Pay Policy (SSPP).

The consequence of “hidden” arrears is “off-balance sheet” methods with third parties such as recent hints of “factoring”—involving discounting or loss to suppliers and contractors. The hidden arrears worsen the adverse fiscal effect of high public expenditures arising from unfunded political promises that have also diverted oil revenues from development projects into consumption. The combination of currency depreciation and high debt levels from the banking sector bailout, is not consistent with the fiscal consolidation. The sharp decline in primary and budget balances should have led to less borrowing and assurance to non-resident investors that exited Ghanaian bonds late last year and early this year.

The fiscal situation described in the article is a pity, given the significant buffers that inform the true state of the end-2016. These included oil and gas investments that guaranteed increased crude oil output from about 73,000 barrels per day (bpd) to about 180,000 bpd from 2017; beefed-up revenue from the rise in crude oil prices from sub-US$40 pbl to average US$65 pbl; ESLA revenues of about GH¢3 billion annually; Sinking Fund—even after using about US$500 million to redeem the substantial part of the US$750 million debt on Ghana’s first sovereign bond; and budget buffers in the Stabilization, Heritage and Budget Funds.

The mandatory 2019 Mid-Year Review under the Public Financial Management Act (PFMA) must be used to make the necessary adjustments and plan for liquidating the arrears that keep accumulating under the yoke of explicit and subtle “offsets”.

The writer was a former Minister of Finance

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