According to him, Finance Minister Ken Ofori-Att, despite making mention of MIIF in presenting both budgets to Parliament, failed to provide sufficient information on Agyapa Royalties which affects the fiscal framework of government.

Among the information Mr Terkper says the government failed to give to the House included; the mortgaging of the current $200 million dollars accrued to the State from its mineral royalties as well as it being the substantive replacement of the Minerals Development Fund (MDF).

In reviewing the 2020 Substantive and Supplementary Budgets, the Government did not give any of the following fiscal measures to Parliament;

• That the MIIF will substantively replace the Minerals Development Fund [MDF] from 2020 – as the Government noted;

• No policy on how current MDF beneficiaries, including traditional authorities, will continue to get their money;

• The present value computations for about $200 million that accrues from the royalties that is to be “mortgaged” for $500 million to $1 billion loan facilty; and

• No explicit provisions in Financing (or borrowing) and Public Debt in the Budgets from 2020 onwards—besides the International Monetary Fund (IMF) COVID Loan, he wrote.

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Mr Terkper further in the statement stated that the government in applying for the IMF Covid-19 loan in March 2020, engaged in its habitual parallel data reporting by excluding the monetisation of the country’s mineral royalties while including it in the 2019 budget.

Table below shows inclusion of monetization of mineral royalties in 2019 budget but its exclusion from the 2020 budget.

The final article in the “BOG MPC AND DEFICIT FINANCING” series calls on
Parliament to re-examine the revised 2020 Budget and COVID-19 fiscal gaps that it approved
to mitigate the effects of the pandemic. The areas to examine include (a) the use of “offsets” to
show a lower fiscal gap for the approval; (b) besides a lower GDP, extra costs that increase the
budget deficit materially from Ghc18.89 billion to Ghc 25.1 billion; and (c) since the extra
COVID-19 costs is funded, highlight the reasons for using the virus spread as excuse for Bank of Ghana (BOG) to finance over 50 percent of the disclosed 2020 budget deficit.

It is not transparent to use COVID-19 to resurrect the proposed BOG deficit-financing
which existed since 1970s but was abolished. The IMF and other multilateral/bilateral loans and
drawdown from the Stabilization Fund now cover COVID costs. As we noted in past articles,
since GOG uses about 98 percent of tax revenues on interest payment and compensation only, it was creating financing problems, even without COVID-19. This article uses the IMF’s Article
IV (December 2019) and Rapid Credit Facility (RCF)/COVID (April 2020) Reports to show the
original 2020 Budget gap (above fiscal deficit) and the gap relating to COVID19. Table 1 is from the RCF/COVID-19 Report.

Table 1 corrections and use in ensuing sections will show that the reasons for the
financing pressure is partly due to GOG’s continued use of fiscal “offsets”.

• Arithmetic errors: addition errors of 6.1% plus (-0.2) % percent [Art. IV] and 5.3% plus a further 4.1% [RCF-COVID] in the totals (Lines 1 and 2).

• Fiscal “offsets”: the figures 6.1% and 5.3% in the bullet point above are equal to the interest payment items for the Article IV and RCF columns respectively (Line 1.1).

The second point is that GOG has met the projected COVID-19 costs in Table 1 and, therefore, it is not credible to use the virus as the entire excuse for BOG’s deficit-financing.

• Weak reasons for deficit financing: MPC’s reasons of tight domestic market condition and significantly high interest rate are insufficient but more transparent than MOF.

• Self-inflicted higher deficit: GOG’s use of narrow base to exclude exceptional costs from so-called “headline” deficits diverges from financing and public debt on broad basis.

• “Offsets” show “impressive” outcomes: as with “interest payments” in this article, GOG uses implicit offsets and neutralized fiscal items (arrears and exceptional costs) to equate budget deficits to fiscal balances (both cash and commitment basis).

Since the correction of these anomalies are not related to the policy actions on COVID-19, the House must engage in a full debate on proper fiscal rules for recording and reporting budget, financing, and debt outcomes—in considering the MOF request for deficit-financing.

Table 1: IMF RCF (COVID-19) Fiscal Gap Computation

2. Fiscal pressures started with understating budget deficits

Tables 2 to 6 correct and separate the IMF’s pre-Corona and post-Corona financing
needs and possible sources of funding. From the Article IV in 2019, it repeats Table 1’s bases to (a) use “routine” grants or loans to pay for the 2020 Budget deficit and (b) “exceptional” financing for COVID-19. The main conclusions from Table 2 are as follows—

• Borrowing for Budget items: GOG borrow for (a) the normal fiscal deficit; (b) debt service (i.e., interest and amortization); and (c) exceptional expenditures such as energy costs and bailout cost (from ESLA).

• Borrowing usually excludes debt service: however, as Table 2 shows, the rise in deficit from Ghc18.9 billion to Ghc25.5 billion (Art. IV) and Ghc36.6 billion (RCF) excludes the entire debt service and reverses ESLA “self-financing” for energy and road arrears.

• Inadequate domestic revenue: The Budget can only meet (a) salaries and allowances (b) goods and services; (c) transfers (e.g., DACF, etc.); and (iv) capital expenditure.

• Errors (“offsets”) exacerbate the gap: As noted, the errors or “offsets” (equal to interest payments in both Art. IV and RCF) increase the burden of financing.

To reiterate, the country is borrowing to repay public debt (principal and interest) and
increase in 2020 fiscal deficit from 6.4 to 9.5 percent of GDP—a reflection of GRA’s inability to
raise sufficient revenues to support an expanded GOG expenditure program.

Table 2: Budget financing needs

3. Crisis not deterring MOF’s use of fiscal “offsets” to impress

Table 3 shows the [writer’s] adjustments or corrections of “offsets” in calculating the
2020 Budget and COVID-19 financing gaps. The precedent is clear: similar abuse of fiscal
rules to reduce the budget deficit from 10.3 percent to 6.3 percent of GDP (old basis) in the same fiscal year (2016). Hence, article concludes beyond a mere fiscal error to use of “offsets” to equate neutralize “interest payments” in the Article IV and RCF columns in the Tables. The
article continues with the corrected fiscal gaps of 22% (Art. IV) and 27.5 (RCD/COVID).

Table 3: Correction of “financing needs” gap

4. The difficult domestic [market] financing situation

GOG is relying heavily on a “developing” domestic market to finance the 2020 and
COVID-19 fiscal gaps. Table 4 shows that correcting the fiscal gap puts more pressure on
Government to look for alternative or unorthodox sources of financing. The article adds some
2020 Budget items for comparison.

Table 4: Financing of 2020 Budget Items

The IMF reports combine Table 4 and Table 5 but, while they overlap, separates the
“routine” 2020 Budget and “exceptional” COVID-19 financing needs. The following are some
critical observations on financing the routine budget balance (Table 4).

• Inclusion of “off-budget” or “exceptional” items: the IMF shows the narrow basis (i.e., so-called “headline” deficit) separately but adds all exceptional costs (i.e., bank bailout costs and energy sector arrears) to the overall deficit or balance.

• Heavy reliance on domestic market: GOG expects to raise about 65.84 percent (Art. IV) or 60.22 percent (after IMF RCF etc.,) from a relatively weak domestic market—which COVID state got worse for its primary and secondary dealer banks.

From August 2015, as part of the “smart-borrowing” initiative, GOG launched specific measures to deepen the domestic capital market: notably, the book-building “bid” approach for medium and long-term GOG instruments and establishing the Ghana Fixed Income Market (GFIM). These structures are not yet strong to support such high GOG debt market and any spillovers from COVID-19.

Table 5 shows (a) estimates for exceptional COVID-19 expenses and revenue shortfalls; and (b) external and domestic source of financing.

Table 5: Exceptional financing of COVID-19 estimates

Table 6 shows the Memorandum Table that corrects “offsets” and omissions from the
IMF extract in the substantive Tables above.

Table 6: Correction of errors and offsets

5. Other signals of tightening domestic financial market

As BOG’s MPC statement noted, the issue is a tightening domestic capital that can now
only cater for GOG’s new issuances and rollovers at “significantly high interest rates”.

• Exceptional domestic financing: after the IMF, World Bank and other COVID-19 support, GOG must raise extra 1.7 percent of GDP from the same domestic markets, which takes the overall financing to about 70 percent.

• Financing rollovers: the financing discussed above does not include sourcing funds from the same domestic market to rollover maturing GOG bills and bonds.

• Exit of non-resident investors: exit of non-resident investors with 50 to 60 percent share of medium-term bonds (not allowed in the short-term treasury and notes markets).

• Increasing use of “tap-ins”: recent large “uncovered” auctions and “build-building” bids result in “tap-ins” (private deals) to refinance existing or take new issues offers.

The government got to its peaks with the use of oil revenues and debt to finance high consumption expenditures. The uses for the 2020 Sovereign Bond include routine current expenses such as the Free Senior High School and expensive initiatives—items that cannot be sustained on borrowing and debt that is expected to hit 70 percent at end-2020. Neither is tapping BOG Balance Sheet sustainable, given the deferral of its debt service commitments.

6. Conclusion

GOG’s own 2020 Budget summarizes the domestic financial market situation from
2019 (Q1 to Q3) clearly as follows (p34 par.138 and 139): “The higher-than-programmed
financing (especially from domestic sources) stems mainly from the frontloading of financing requirements to meet Government expenditures and other debt service obligations, including the settlement of uncovered Government auctions, following substantial revenue shortfalls.

“As a result, total Domestic Financing, including drawdown of Government deposits at
the Central Bank, domestic market operations, and other sources of domestic financing
constituted about 59.6 percent of total financing, amounting to Ghc9.3 billion (2.7% of GDP)
against the target of Ghc3.7 billion (1.1% of GDP)”

These are based on the narrow deficit basis—excluding exceptional costs—since
earlier it states : “Mr. Speaker, following Governments fiscal operations, the overall fiscal
balances on cash basis resulted in a deficit of Gc15.7 billion, equivalent to 4.5 percent of GDP) against the target of Ghc14.2 billion (or 4.1 percent of GDP”.

Table 7 from the MOF Website (updated January 2020), continues to show the wide
difference between GOG data and IMF reports. First, the outturn to end-2019 is impressive but
hardly credible and, second, even the addition of exceptional costs by GOG diverges widely
from the IMF Article IV and RCF/COVID disclosures.

Table 7: Budget and Fiscal Outturn for 2019

The financing difficulties that is now drawing BOG unorthodox fiscal practices and
rules are partly self-inflicted. They derive from the brazen use of unorthodox accounting and
fiscal rules such as “offsets”, flattening fiscal balances to equal budget deficits, and excluding
“exceptional costs” to impress. These are contrary to passing a comprehensive Public Financial
Management Act (PFMA) in 2015 and its “derivative” 2018 Budget Responsibility Act (BRA).

Despite overlaps, Parliament should separate the correction of budget deficit anomalies
from measures to minimize the impact of COVID-19 pandemic. Examples of fiscal overlap
include the fall in domestic taxes from COVID-19 actions (e.g., lock down, shutdowns, border
closures etc.,) and OPEC (Russia versus Saudi) crude oil price fall. After all, the fiscal data to
end-2019 and 2020 were available before the declaration of the COVID pandemic in March
2020.

According to the entrepreneur, he is not interested in the utilities outlined in the budget because he does not benefit directly from them.

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“I do not need roads because I don’t own a car and I have never driven, I don’t need hospital, electricity and utilities but I need my money in hand,” he pleaded.

Furthermore, he pleaded that if possible the government should extract his share of the national cake, sent via Jigawa State governor to be donated to him as he is suffering from financial problems.

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He explained that he does not want to be a social vice, hence his share should be delivered to him in cash.

Comrade Mohammed expressed his suggestion via an Instagram video:

The forum will be held today Wednesday, November 20, 2019, at the Ghana Academy of Arts and Sciences, behind the Golden Tulip Hotel in Accra.

According to the party, the forum aims to share with the general public the party’s views and perspectives on the budget presentation.

The event is expected to take place at the Ghana Academy of Arts and Sciences in Accra at 4 pm.

 The event will host the Member of Parliament (MP) for Ketu South constituency and former Minister for Transport, Fifi Kwetey, MP for Ajumako-Enyan-Esiam constituency and a former Deputy Finance Minister, Cassiel Ato Forson, and Isaac Adongo, MP for Bolgatanga Central constituency as its speakers.

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The 2-day workshop will afford Members of Parliament the opportunity to critically study the budget as presented to them to enable them sufficiently debate it.

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The two-day event which is mostly held outside Accra this time took place at Parliament’s Job 600 Complex, in the national capital.

Majority Leader, Osei Kyei Mensah Bonsu who announced the change in venue on the Floor of Parliament said the move is to save money and make good use of Parliament’s resources.

“In accordance with the practice in the House, a post-budget workshop has been scheduled for Members of Parliament to enable the honourable members assimilate the content of the budget.”

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All members are expected to participate in the workshop scheduled for Saturday, November 16, 2019 and Sunday November 17, 2019.

Speaking in an interview on Adom Fm’s morning show Dwaso Nsem Thursday, the MP said the budget reflected the benefits Ghanaians have enjoyed from the current government.

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“Without Free Senior High School parents would have spent GH¢ 1.8 billion on education, we paid over GH¢ 840 million to NABCO, GH¢ 336 million to nursing trainees, GH¢ 357 million to teacher trainees, not to talk about the rest of government’s flagship programmes. All these are benefits Ghanaians have enjoyed from the NPP government,” he said.

His counterpart, Mr Eric afful, MP for Amenfi was, however, of a different opinion.

“Ghanaians are disappointed in the NPP government, to Ghanaians the figures and achievements in the 2020 budget are the same old stories,” he said.

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He said unemployment, which is still the country’s biggest problem, remains unsolved.

“The biggest problem in the country is still unemployment, averagely 40,000 graduate students still remain unemployed, potable water and other social amenities still remain a problem in the country,” he said.

Mr Afful, later expressed his amazement at the revelation that the current government had borrowed GH¢ 85 billion in just three years of managing the economy.

“I was amazed to hear the Finance Minister say they had borrowed GH¢ 85 billion in three years, compared to the GH¢ 122 billion cedis in the NDC government. And after all the borrowing what is there to show for it?” he quizzed.

The Finance Minister, Ken Ofori-Atta, has said provisional fiscal data present indicates that government’s fiscal operation of the first nine months of 2019 shows 2019 has been a very good year for the country.

According to the Finance Minister;

• Overall fiscal balance on cash basis resulted in a deficit of Ghs 15.7 billion equivalent to 4.5 per cent of GDP as against a fiscal deficit of Ghs14.2 billion equivalent to the targeted targeted 4.1 per cent of GDP.

• Total revenue and grants for the period amounted to Ghs 36.3 billion refelecting a 10.5 per cent to GDP. An out turn representing a per annum growth of 9.2 per cent despite  a shortfall from its Ghs 42 billion target, representing  12.1 per cent of GDP.

• Total expenditure including arrears clearance amounted to Ghs 51.9 billion cedis representing a 15.1 per cent to GDP as against a target of Ghs 56.1 billion  equivalent to 16.2 per cent of GDP. Indicating a reduction in total expenditure.

•  Primary balance for the period was Ghs 916 million representing a 0.3 per cent to GDP against a primary surplus target of Ghs 201.7m representing 0.1 percent of GDP, hence government recorded gains from trade.

• Total public debt increased form Ghs 122.3 billion in 2016 to Ghs 208.6 billion including cost of banking sector clean up at the end of September 2019, raising the debt to GDP ratio to 60.55 per cent as at end of September  2019.

• Inflation declined from15.4 per cent in 2016 to 7.6 per cent in 2019 and has been in single digits since april 2019.

• Interest rate has also declined with average lending rate declining from 31.7 per cent in 2016 and stagnating at 24 in 2019, with government promising to actively work to remove structural bottlenecks to support lower interest rates.

• Cedi depreciation against dollar averages 7.8 since 2017 to 2019.

Based on the performance of the economy for the first nine months of the year, revised projections for end of year were:

• Total revenue and grants to increase to Ghs 54.6 billion equivalent to 15.8 percent of GDP.
• Fiscal deficit projected to reach about 4.7 per cent to GDP with a further increment in primary surplus to 0.9 per cent of GDP.

The Finance Minister attributed the general under performance of tax revenue to shortfall in international trade, taxes on income and property taxes, import duties, customs, Value Added Tax, National Health Insurance Levy and higher admittance of import goods into the zero rated and tax exempted brackets.

The Minister, speaking in his budget presentation, pledged government’s hard work to fix the economy would not be derailed.

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“We pledge to Ghanaians that we will not derail the economy we have worked so hard to fix,” he said.

The Minister said the government’s decision to pass the fiscal responsibility act which limits fiscal deficit to 5 per cent of Gross Domestic Product (GDP) as well as the establishment of the fiscal council was a demonstration of its commitment to fiscal discipline.

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The Minister revealed that the fiscal deficit on cash basis fell from 6.5 per cent to GDP in 2016 to 4.5 per cent to GDP in 2019.

He added that for the first time in a decade, Ghana had recorded primary surpluses in which tax revenue exceeded government spending including debt servicing for two years in a role.

Amidst chants and heckling with shouts, the Minority held placards displaying how they perceived the 2019 Budget.

According to them, the government has not been truthful to Ghanaians on the realities on the ground, in relation to the economy.

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To them, Ghanaians are worse off under the Akufo-Addo government than the erstwhile Mahama administration.

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Former Finance Minister, Seth Terkper, has laughed off government’s announcement that, it will not introduce new taxes in this year’s budget.

According to Mr Terkper, the government, during the mid-year budget review increased taxes and therefore it was meaningless for the government to say it will not increase taxes.

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“There are still temporary taxes since former president Kufuor’s term, and I hear that there would be no new taxes. Of course you have already increased taxes from petroleum to other things and so coming to tell us that there will be no new taxes is meaningless” he said.

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The final budget statement and fiscal policy of the Akufo-Addo-led administration will be delivered in Parliament today, Wednesday November 13, 2019, by the Minister of Finance, Ken Ofori-Atta, ahead of 2020 general elections.

Election years have been marked by excess expenditure as the country tends to spend more during election years, hence missing its fiscal deficit targets.

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But speaking on Adom FMs morning show “Dwaso Nsem” Mr. Terkper, cast doubts on claims by the government that, the country’s rebased fiscal deficit has been trimmed, calling on the government to come clean and a make full disclosure of its total fiscal deficits and its impact on the economy.

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“A critical factor in determining the impact or incidence of a tax is knowing the elasticity of the product, government must first do that analysis and get to know the reaction of the ordinary consumers, will the tax get the needed revenue, will it deter them or they will consume anyway?” he said.

He said the government must not rush into implementing the tax increase as a lot of things need to be thought through before an increment in the tax of such products.

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“We need to question ourselves how much are we going to raise from it, because we must put systems in place to enforce this tax, how much is to cost us to put the system in place, will it cause smuggling and cause people to create a black market economy.

“All these are things we need to think through before putting them into action so that we do not implement the policy and not achieve the intended purpose. So instead of rushing to implement the tax increment, let’s take our time and consult the necessary stakeholders and do the real economic tax impact analysis,” he said in an interview with Joy News.

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The Finance Minister, Ken Ofori-Atta, is due to present the 2020 budget to Parliament, Wednesday, November 13, 2019.