The mid year review for 2020 is impending and due to the impact of the coronavirus pandemic and the necessary public policy responses, this year’s constitutionally required review will actually be more akin to an entirely new budget than limited tinkering with the original one.
Both government’s revenue profile and its expenditure plans have been thrown widely askew by the effects of the COVID 19 outbreak. Public revenues have been reduced significantly just as public expenditures have been forced upwards dramatically.
Coming up with a viable, larger than originally targeted fiscal balance is the primary task now facing Ghana’s embattled Finance Minister.
But as difficult as this task is, it is not the only problem he is faced with now. Another problem that has been simmering in the back ground now appears to be rearing its head more prominently and crucially is attracting the attention of both local and international fiscal policy analysts as well as both multilateral and bilateral development partners.
This is the status and consequent effects of public debt that is however classified in public accounts as “off balance sheet” items. These are the outstanding energy debt and the cost of the financial sector clean up through the issuance of resolution bonds.
Simply put, although government has got away with classifying them as other than direct public debt – by ascribing the energy sector debt to a corporate special purpose vehicle called ESLA Plc and by claiming that the financial sector clean up cost is a one off item and so should not be computed in any public debt figures or ratios – it still has to pay both interest and principal on those debts.
This has raised veritable controversy, especially since the International Monetary Fund in its review of Ghana’s fiscal situation in response to a request for Rapid Credit Facility, came up with public debt and fiscal deficit figures which were significantly different from those of government itself because it insisted on incorporating those two debt segments into its computations. The results, for example raise the fiscal deficit for 2019 from government’s figure of 3.9 percent to over five percent. They also raise the public debt to Gross Domestic Product level from government’s 59 percent to close to 70 percent.
Critics point out that since the off balance sheet debt has to be serviced, no matter how it is classified, it puts Ghana’s public finances in a conundrum whereby more resources are being used to sustain the public debt than government claims. This in turn is forcing government to secure more new financial resources than it publicly claims it needs
On the other hand this newspaper accepts that the energy sector debt, being payable through ESLA levies is ultimately self amortizing. We also choose to be charitable by assuming that although government’s actions do not show full financial transparency and are aimed at presenting a better position of fiscal performance than is actually the case, they also aim to convince the international financial community to give Ghana better financing and refinancing terms than the real situation would indicate.
But with the IMF’s RCF review figures the cat seems to have been let out of the bag. We therefore suggest that the impending mid year review incorporates the true situation and thereby allows government to work with the real situation. Realism would ultimately make its work easier and give Ghana the fiscal credibility it direly needs in these challenging times.