By Jonathan S.K. AMABLE
…This is the first part of a series which examines the causes of our national economic woes and what it will take to successfully achieve the key planks of the new Government’s economic reset agenda
Framing the context
January 7 is an important date in Ghana for 3 reasons; it marks the beginning of our 4th attempt at a national democratic experiment, it is the date on which our current national constitution came into force, and it is the date for our quadrennial swearing in of a newly elected President.
In the years where there is no presidential transition, January 7 is typically an occasion for Ghanaians to pause, take stock of our democratic journey and consider whether it is yielding the dividends we expected it to produce when we set out on this expedition some 3 decades ago.
According to the preamble to the 1992 Constitution, these dividends are “the blessings of liberty, equality of opportunity and prosperity”. When there is a presidential transition, the January 7 stock-taking exercise usually takes the backseat – overshadowed by pomp and pageantry as the winning party’s members revel and take over the reins of the political kingdom, while the vanquished lick their wounds and beat a televised retreat into the gloom of life in opposition. President Mahama began his inaugural speech on 7 January 2025 by drawing parallels between his victory and the birth of our constitution in 1993.
He acknowledged that any honest reflection on the pulse of our nation would reveal that many within our population do not feel they have benefitted from or partaken in the democratic dividend, and affirmed his intention to fulfil his campaign promise of resetting Ghana and implementing the “vision of our forebears – to build a prosperous and democratic state anchored on the principles of freedom and justice, providing equal opportunities for all”.
The President went on to highlight 4 critical areas his administration will prioritise: restoring the economy and stabilising the macroeconomic environment; improving the business/investment environment; governance and constitutional reforms; and accountability and the fight against corruption.
Naturally, some Ghanaians are sceptical about the Government’s ability to achieve these goals. After all, we have witnessed successive governments fail to walk the talk after winning elections based on promises to fix Ghana.
Due to these failures, one may say that with the exception of a few issues such as complications from climate change and the advancement of technology, Ghana’s problems have remained the same for decades. Just like our national problems, many of the proposals for redress are the same solutions I read about in textbooks during my teenage years.
There is a school of thought which believes that our national problems persist because our political leaders consistently fail to enforce the adequate, existing legal framework which was designed to produce the democratic dividends we seek.
Increasingly, this school of thought is losing steam to an alternative view – one which essentially blames the framers of our current legal construct for Ghana’s predicament. Members of this school point to “winner takes all politics” and having “an executive president who wields enormous power” as part of the causes of our problems. Proponents of this alternative view argue that Ghana cannot be reset without an overhaul of our current legal regime.
After due consideration, my conclusions are that:
- Ghana’s reality favours the non-enforcement school over the legal overhaul school. Our real problem is the failure of our political leaders to enforce existing laws, which is symptomatic of a much deeper problem – our inability or refusal to learn from history; and
- whether or not the new administration achieves its reset agenda, and how long it will take for the reset agenda to produce the democratic dividends Ghanaians yearn for, depends on the school of thought President Mahama and his team subscribe to.
These conclusions are especially true in respect of the quest to restore macroeconomic stability, create a more beneficial domestic investment climate, and hold the Government accountable. Our 2022 national economic crisis presents itself as the perfect foil to examine these conclusions.
The International Monetary Fund (IMF), in its staff report on Ghana dated 17 May 2023, attributed the cause to fiscal policy when it stated as follows: “Faced with large development needs and an intricate social and political environment, the government’s fiscal policy response has been insufficient to maintain investor confidence. This resulted in a loss of international market access in late 2021, increasingly constrained domestic financing, and reliance on monetary financing of the government.
The ensuing negative feedback loop of decreasing international reserves, Cedi depreciation, rising inflation and plummeting domestic investor confidence accelerated last year and eventually triggered an acute crisis.”
Put simply, we were plunged into economic crisis because the Government was spending in excess of its revenue, resulting in an unhealthy reliance on borrowing from foreigners (through the international capital market), domestic investors, and the Bank of Ghana.
This adversely impacted investor confidence in the Ghanaian economy, leading to capital flight through investor portfolio reversals, which in turn increased demand for forex, resulting in currency depreciation. Evidently, our economic and investment climate issues can largely be traced to, and resolved by, how much the Government spends, how much revenue it raises, and the rate at which it borrows.
The aspirations of our forebears
Problems caused by how much the Government spends, how much it borrows, and its ability to raise revenue, may be resolved by having an efficient legal framework to control governmental spending and borrowing. Ghana’s legal regime is not deficient in that regard.
Our 1992 Constitution has an inbuilt solution – a financial control regime that holds the Executive accountable through parliamentary oversight. This regime requires the President to cause estimates of the State’s revenues and expenditures for each ensuing financial year to be prepared and laid before Parliament at least one month before the end of the preceding financial year.
Our forebears, in the proposals for the 1969 Constitution, outlined the information required to enable parliamentarians approve these budget estimates on an informed basis. They charged our parliamentarians to be actuated by a sense of national responsibility and not act like a mere rubberstamp when considering the budget for approval.
They specifically proposed that there should be a parliamentary committee whose duties would include scrutinising financial legislation and proposed expenditure from public funds to enable Parliament exercise this oversight responsibility better.
Our forebears hoped that we would balance our national budget. That is why they expected the budget statement to include an estimate of the extent to which each expenditure would be covered by existing taxes, and proposals regarding whether taxes must be increased or decreased to balance the proposed expenditure.
That is also why they hoped that the “Ministry of Finance, in considering the estimates, will look at the proposals for expenditure in relation to our national resources and weigh the advantages of administrative proposals against the monetary and economic cost, taking into account current government policy”.
This statement clearly demonstrates that our forebears understood that the economic cost, where fiscal policy results in a budget deficit, could include rising inflation and public debt. Our forebears recognised that they could not prohibit budget deficits by constitutional prescription, especially because in certain cases financial policy may require a budget deficit.
They expressed their limitation and the rationale for their permissive approach in these words “we cannot, in considering a Constitution for Ghana, lay down the precepts by which any Government of the day can formulate its financial and economic policies for the greatest good of the people of Ghana. What we can do is to lay down certain principles by which there would be effective control of governmental spending and allow for effective social accountability.”
The principles for effective control of government spending includes article 181, which prohibits any loan taken by the Government from becoming effective unless Parliament has approved the terms and conditions of that loan.
This prohibition was created because Ghana was, by 1965, facing a debt repayment crisis which had to be resolved through debt rescheduling agreements in 1966, 1968 and 1970. Our forebears thought parliamentary scrutiny of all loan transactions would avert further national embarrassments of such nature.
The sorrows of our forebears
Our forebears would be as distressed as our national economy if they were to look down on present day Ghana. Successive national budgets have failed to disclose in sufficient detail, the budget items to be funded from projected revenue and grants, those to be undertaken through debt financing, and how the proposed new borrowing would interact with pre-existing debt obligations. This has robbed our parliamentarians of critical information needed to decide the expenditure items to reject, vary, or approve (if even on a conditional basis).
Further, information related to expenditure and fiscal deficits are presented and approved as targets, not limits. As a result, the Executive can, without consequence or further recourse to Parliament, borrow in excess of its disclosed target in the approved budget or create debt obligations through arrears when its revenues do not keep pace with its projections. This was the case in 2021, where our net domestic financing exceeded the revised target in the approved budget by 42.1percent.
In addition, we have convinced ourselves that the constitutional requirement to seek prior parliamentary approval of the terms and conditions of new loan transactions does not apply to transactions under which the Government borrows money through the issuance of domestic debt securities such as treasury bonds, notes and bills.
Some have suggested that debt securities are so novel that our forebears could not have had them in contemplation when proposing the constitutional financial control regime. This faulty reasoning glosses over the fact that our forebears deliberately provided a very wide constitutional definition for loans to guard against any such restrictive interpretations.
According to the Ministry of Finance’s October 2024 Monthly Debt Newsletter, Ghana’s total public debt stood at GH¢761 billion as at end-October 2024, out of which domestic debt securities constituted GH¢306 billion. The Central Securities Depository (GH) LTD’s December 2024 monthly bulletin states that Ghana’s outstanding debt (in terms of treasury bills alone) stood at approximately GH¢111 billion as at end-December 2024.
It beggars belief that our forebears would create a financial control regime which excludes such a substantial proportion of our public debt stock from parliamentary control, when they intended to use parliamentary oversight to control our public debt.
Others have tried to advance what are supposed to be administrative reasons to defeat the wisdom of our forebears, arguing that article 181 does not apply to treasury bills because the Executive cannot reasonably seek parliamentary approval for each weekly issuance.
This argument betrays a profound lack of understanding of capital market transactions, especially the concept of shelf registrations or shelf offerings, which would permit the Executive to present Parliament with the terms of its proposed treasury bills issuance programme for a specified period of time.
Through a shelf offering structure, Parliament may approve a debt ceiling for Ghana’s treasury bills for a prescribed time, together with a maximum interest rate. This would permit the Executive to undertake its usual weekly treasury bill issuances without further recourse to Parliament, unless the Executive intends to vary any of the approved terms (such as the prescribed maximum interest rate).
This approach, which is customary in relation to corporate debt securities offerings, has additional advantages. Firstly, it requires the Executive to produce some documentation which records the key details of the treasury bills to be issued. These details may include information about the rights and duties of the issuer and the rights and duties of the securities’ holders.
Debt securities in Ghana are traded on the Ghana Fixed Income Market (GFIM). GFIM’s admission rules require prospective issuers to provide GFIM with a prospectus or placement document which discloses key details of the issuance such as risks, financial and non-financial covenants, dispute resolution mechanisms, as well as any other information an investor may require to make an informed decision when purchasing the issuer’s securities.
Although the GFIM rules exclude the Government of Ghana from complying with this requirement, the Ministry of Finance typically issues bonds pursuant to standard documentation such as a deed of covenant, prospectus and pricing supplement.
The same cannot be said for treasury bills, which are issued without any underlying documentation. This unfortunate situation, which creates uncertainty regarding investor rights or issuer rights and duties when it comes to treasury bills, may not present any issues until a crisis occurs. The erstwhile cocoa bills were issued in a similar manner without any underlying documentation.
The profound effects of this aberration were revealed during the recent domestic debt restructuring exercise – cocoa bill holders were confused, with the market unsure of whether unauthorised rollovers were a breach of their contractual rights; uncertain about the persons who were authorised to hold cocoa bills; and confused about whether the cocoa bills were sovereign debt issued by the Government or corporate debt issued by the Ghana Cocoa Board.
It is amazing that in this day and age, after financial meltdowns such as the global financial crisis of 2007-2008 and our own domestic debt restructuring exercise, domestic financial institutions with their well-funded risk departments and savvy regulators, are comfortable with an investment instrument which is issued with no underlying documentation.
That sort of conduct would not have been concerning if the market still held the view that government instruments are risk-free. It is alarming today because the 2022 financial statements of most financial institutions and the Bank of Ghana attest to the risk that holding treasury instruments actually creates.
>>>We will continue to highlight how deviations from the constitutional accountability framework have contributed to our present national economic crisis and consider the steps needed to ensure economic recovery in the next part of this series.
>>>the writer is a lawyer with niche expertise in finance law and corporate & commercial law. He has advised sovereigns, parastatals and the private sector on diverse capital market and banking transactions, as well as financial sector regulatory compliance. Jonathan may be reached by email on [email protected]
