Fiscal Scorecard(Vi): Financing—inevitable borrowing

The articles in these series use tables and graphs to discuss the actual and projected fiscal performance from 2013 to 2020. Earlier series dealt with the unusual treatment of exceptional amounts “below-the-line” and side-stepping vital fiscal rules such as ignoring holiday rules and reversing January 2017 interest accrued to end-2016, adding arrears to amortization, and using end-March 2017, not end-December 2016, exchange rate to measure 2016 debt stock. This final one (Part VI) discusses borrowing to “Finance” the deficit or fiscal balance in annual Budgets.

It argues that it is inaccurate to show exceptional items as footnotes since it lowers lower financing and treats part of debt as footnote (not ledger entries) in the Public Accounts. As the tables in the article show, the approach is retrogressive in undermining the shift to semi-accrual accounting under GIFMIS, as Ghana’s fiscal framework adds exceptional items to commitment and financing “above-the-line”.

Hence, despite recent impressive fiscal consolidation on this so-called “headline” or narrow basis, the Review of Ghana’s 2019 IMF Article IV Consultation warns of rising debt levels (in essence, no contraction), “off-budget” transactions, and “crowding out” of normal expenditures by special initiatives such as the Free Senior High School (SHS) program.

Summary of fiscal performance

Part 1 in the series discussed the Public Debt while Parts II to V covered the values in annual Budgets and the Fiscal Framework in detail, including

  • cash flows: the actual receipts of revenues and payments of expenditures;
  • budget deficit: excess of expenditure over revenue (the unlikely reverse being surplus);
  • arrears or commitments: unpaid non-cash normal and exceptional expenses; and
  • fiscal balance: deficit plus arrears; and (e) financing: borrowing to pay the deficit.

Table 1 shows that the fiscal balances plus discrepancy and exceptional items is equal to financing or the annual borrowing added to the accumulated or stock of Public Debt (Part I).

Table 1: Fiscal performance (Nominal)


Source: Budgets & MOF Websites


Table 2 shows the nominal outcomes as percentages of Gross Domestic Product (GDP).


Table 2: Fiscal performance (Percent of GDP)


Source: Budgets & MOF Websites


Highlighting “off-budget” offsets


Past articles have disputed the claims surrounding the Ghc7.3 billion that government claimed as outstanding from the immediate past administration. As Tables 1 and 2 show—


  • the “stand-alone” amount of035 billion “offset” in 2016 is part of the Ghc7.3 billion—and “accrual” item in the “cash” part of the Fiscal Tables;
  • it results in unprecedented net “positive” arrears—usually in the negative—of Ghc2.7153 billion in the same 2016, which confirms its status as an offset; and
  • hence, MOF did not pay or carry forward the Ghc5.035 billion, as implied in the 2017 Budget, to portray a remarkable fiscal consolidation;
  • this assertion implies again that MOF made a whopping “net payment” or clearance of arrears of Ghc7.8 billion in 2016—ironically, under the Mahama administration.


To complete the “offset”, as Tables 3 and 4 show, the accrued section of the fiscal tables had a net “positive” amount of Ghc2.7153 billion. This is the sum of three (3) arrears items:


  • two standalone counterpart “offsets” for unpaid commitment (Ghc4.292.3 billion) and outstanding payments (Ghc743.3 million); and
  • which is equal to the 035 million less clearance of outstanding commitments (Ghc2.320 million)likely, the true arrears figure.


Table 3: Extracts of Nominal Arrears


Source: Budgets & MOF Websites


Table 4: Extracts of Arrears (percent of GDP)


Source: Budgets & MOF Websites


MoF reported the end-2016 deficit as 9.3 percent (i.e., ratio of GDP for Ghc7.3 billion) in the 2017 Budget but changed it to 6.5 percent in the 2020 Budget Speech (par. 34). However, it did not adjust for the reversal of January 2017 accrued interest to December 2016, in clear violation of the “cut-off” rules for holidays and weekends.

Financing the deficit or fiscal balance


Financing is borrowing to pay the fiscal balance or deficitthe excess of expenditure over revenues. As Tables 5 and 6 or Figures 1 and 2 show, financing is equal to the deficit and shows the domestic and external sources of raising loans to support annual or supplementary Budgets under the Constitution and Public Financial Management Act (PFMA),2016 (Act 921).


Table 5: Deficit and financing (nominal)


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Source: Budgets & MOF Websites


Figure 1: Deficit and financing (nominal)


Source: Budgets & MOF Websites


Table 6: Deficit and financing (percent of GDP)


Source: Budgets & MOF Websites

Figure 2: Sources of Financing (percent of GDP)


Source: Budgets & MOF Websites


Financing: specific sources


The discussions so far show that the main sources of financing the deficit are less stable and mainly from the traditional domestic and foreign loans, including domestic and external (sovereign) Bonds in the last decade. The “borrowing” activity is now complex and may be used for debt management schemes such as “refinancing” an existing loan.


  1. Foreign sources of financing


Foreign or external loans are from (a) multilateral agencies such as the World Bankd and African Development Bank; (b) bilateral advanced and emerging state sources (e.g., EXIM Banks {US, China, Korea etc.}; development partners {e.g., KFW, USAID, Kuwaiti Fund etc.}; and (c) international banks {Societe General, BNP Paribas etc.}).


In addition, the Government now borrows directly with Sovereign Bonds from stock exchanges or capital market. It also issues sovereign guarantees, for State-owned Enterprises (SOEs), particularly, that crystallize into public debt when not paid. Tables 7 and 8 show a consistent reliance on external loans or financing but with some exceptions that are worth noting.


Table 7: Foreign financing (nominal)


Source: Budgets & MOF Websites

Table 8: Foreign financing (percent of GDP)


Source: Budgets & MOF Websites


  • Borrowing: the actual or estimated “gross” addition to the debt stock at end-2019 could reach the peak of 4.8 percent of GDP at end-2015 and rise by about 1.0 percent in 2020.
    • Project loans: these flows into the capital or development budget has fallen (percent of GDP) since 2017, given the shift to consumption expenditure, notably education.
    • Program loans: these are mostly concessional loans and their size and decline (often to zero) reflects Ghana’s MIC-status and reaction of donors to budget policies.
  • Amortization: this is the amount spent on repayment loans—a negative item which, surprisingly turned substantially positive (3 percent of GDP) in 2019.
  • Exceptional financing: even though there are no special financing items for the review period, we show the line to show that (a) the fiscal framework has always included exceptional inflows and outflows that need not be shown as footnotes; and (b) Ghana officially declared an end to HIPC flows in FY2013.


  1. Domestic and other sources


As Table 9 shows, the state also finances the deficit internally, particularly, through bank and non-bank institutions that play the role of intermediaries for savers and investors.


Table 9: Domestic financing sources


Source: Budgets & MOF Websites


The Government Fixed Income Market (GFIM) was set up in 2015 to enhance trading debt instruments on the domestic financial markets such as the Ghana Stock Exchange (GSE).


  • Bank financing: these “primary” and “secondary” dealers in public debt securities now lead after the tapering of BoG loans under an IMF-inspired BOG “zero-financing” policy.
  • Non-bank: a record Ghc18.4 billion of domestic financing occurred in 2017, adding to a big negative bank (re)financing (Ghc6.4 billion). The net of Ghc12 billion still beats the Ghc11.2 billion in 2016—under a swap with the 2015 external sovereign bond.
  • Other financing: these tend to be ad hoc and special-purpose transactions; again, an item such as divestiture receipts still shows in the fiscal tables as exceptional and reminiscent of past significant policy that is no longer material to the Budget.


The first set of negative figures in 2015 (and, later 2017) is due to a planned public debt “refinancing” program, undertaken with a World Bank Guarantee, involving repayment or swaps of short-term debt instruments with a 15-year foreign Sovereign Bonk.


  1. Ghana Petroleum Funds [Reserves]


The Ghana Petroleum Funds (GPF) under the Petroleum Revenue Management Act (PRMA), 2011 (Act 85) are negative, as “reserves”. These include investment (GIIF/GNPC), budget buffer (Stabilization Fund), ABFA or budget spending (development and consumption), debt management (sinking fund), and savings (Heritage Fund). The positive amounts suggest regular or “formulae” flows under the Act from the GPF into the Budget.


Withdrawals from the GPFs are rules-based and, therefore, the annual balances reflect spending directives under the PRMA, not the general fiscal rules. The routine spending that forms part of Appropriation is from the Annual Budget Funding Amount (ABFA). It will take an evaluation of the PRMA Report to Parliament to appreciate the scope and impact of the inflows.

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The main financing item is the Sinking Fund set up in 2014 to retire debt. It provided US$550 million (total US$750 million) by October 2017, under a “buy-back” plan, to redeem the 2007 Sovereign Bond. The US$200 million difference was “refinanced” in 2015 under a liability management plan. Table 10 shows the GPF balances between 2013 and 2020.


Table 10: Financing and GPF


Source: Budgets & MOF Websites

Adjustments for Bail-out cost


This section discusses the impressive official headline deficit-cum-financing and argues for their adjustment with other items such as the financial sector bailout costs (exceptional expenditure),  amortization (to hide arrears) and known arrears and loans that may not be part of the headline position. Many of these have been in the public domain for a while now.


  1. Bailout costs—distortion of deficit and financing


The bail-out costs are expenses incurred in dissolving several commercial (or universal), saving and loans, and microfinance banks since 2018. The beneficiaries are depositors, other customers, and employees who would have lost income from the closures. Table 11 shows the implications for adjusting the fiscal balance and financing to take account of these costs.


Table 11: Adjusted Fiscal Balance and Financing


Source: Budgets & MOF Websites


Table 11 shows that the fiscal deficit is 7.1 percent under the conventional methods that Ghana has always used to calculate the fiscal deficit—and, eventually, it is the amount that BOG will finance on behalf of government.


  • Sound fiscal framework: the fiscal framework, including the Tables use in this and other articles in the series show that it makes provision for exceptional revenues (HIPC/MDRI, divestiture and ESLA); expenditures and arrears (e.g., single spine, subsidy) and financing (divestiture)—hence, there is no reason to exclude them now.
  • Exceptional expense (Bailout) “below-the-line” but revenue (ESLA) “above-the-line”: this is the contradictory treatment that the government uses in the same budget.
  • Low estimates and spending on bailout (2018 and 2919): the total bail-out cost in Table 11 is Ghc11,526.3 comprising Ghc9801.3 million (2018) and Ghc1,725.0 million but various costs given to date include Ghc15 billion or more. It is important to note that the IMF discloses the gross amount “above-the-line” but with an “of-which” disclosure of the exceptional expenditure—a treatment that was not used for single-spine wage overruns under the ECF Program and Article IV reviews in the past.
  • Zero (0) estimates for 2020 (as in 2017): Further, it is surprising that the estimates for paying bailout costs in 2020 is zero despite, even as the President has authorized the full, not fixed or pro-rated, payments of huge outstanding commitment to depositors. This phenomenon repeats the non-provision of arrears for bailout out costs despite (a) the start of ESLA-backed bank restructuring in 2016; (b) the availability of a term sheet that should have been implemented in 2017; and inflows of over Ghc3 million from ESLA.
  • Low estimates for arrears: the low estimates for bailout costs worsens the low estimates for arrear for the period 2017 to 2019, despite official pronouncements and claims by beneficiaries for arrears of over the period for wages, pensions, and allowances, supplies and contracts, energy consumption, and education commitments.


The implications of a full disclosure of all commitments and adjustments will lead to higher deficits, fiscal balances, and financing (i.e., borrowing and debt).




The discussion of adjustments for known and new commitments gives rise to “off-budget” treatments that a manifest outside the fiscal framework. They include “offsets” of arrears, appendix memoranda disclosures of material or exceptional expenditure, and misclassification of amortization. The goal is to give the impression of rapid fiscal consolidation results in postponement of the fiscal pain and “financing” of government operations beyond the fiscal balance. The Bank of Ghana (BOG) and International Monetary Fund (IMF) have since confirmed this position, respectively, as part of the Monetary Policy Committee (MPC) and the IMF Board’s Article IV Consultation reviews. The projections for the debt-to-GDP ratio is between 63 and 65 percent by the end of 2019.

The writer is the former Finance Minister

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