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The Ministry of Finance has taken note of a Statement by the Institute of Economic Affairs (IEA) and two publications by Dr. Charles Amo-Yartey (the IMF’s Resident Representative in Sierra Leone and Liberia) on Ghana’s Public Debt situation. While we take note of some positive aspects of these publications, the Ministry would also like to issue the following clarifications in response to several general and sweeping assertions in them.

All nations borrow for major capital or infrastructure development; therefore, the current focus of Government Policy is on “smart-borrowing” to sustain Ghana’s growth and development—without unduly increasing “pure” public debt. The need for reform has been reinforced by our attainment of Lower Middle-Income Country (LMIC) status, the persistent large infrastructure gap reinforced by the expansion of the services and agricultural sectors, discovery of oil-and-gas and dwindling access to grants and concessional financing.

The more relevant question to ask ourselves is how do we meet our energy,  road, water, harbour, airport etc. needs without falling into excessive debt—and at a time when our access to “soft” or concessional loans will fall substantially over time?

The traditional practice of putting the total cost of huge infrastructure projects or costs on our Budget has also failed us woefully over the years.  For example, prior to 2009, a significant value of infrastructure projects (notably the roads that we now call “Gang of 6”) were put on the national budget. Indeed, part of today’s fiscal pressure with high cost of domestic debt service emanates from the Bonds that were issued between 2010 and 2012 to finance these projects.

The government, therefore, has started to correct the unsustainability of our traditional debt management approach with specific strategies that were approved by Cabinet and Parliament in the 2013 through 2015 Budgets (we note that there is no reference to the Budget measures and policies in the IEA statement and publications). These measures include:

·         Use of grants and concessional financing: Since Ghana has become a middle-income country that will gradually lose substantial access to grants and concessional financing over the medium-to-long term, the government has decided to channel these resources to finance mainly social infrastructure, development and protection programs.
·         Commercial and quasi-commercial projects will be fully or partially “self-financing”: of Non-concessional or commercial loans will be channeled into projects that must repay, fully or partially, for the loan from the revenues generated.
·         On-lending and Escrow (debt service) account policy: To operationalize the “loan recovery” policy, the Ministry has started signing On-lending Agreements and opening joint Escrow/Debt Service Accounts with State Owned Enterprises (SOEs) that cannot borrow on their own Balance Sheet and rely heavily on the state to guarantee or contract loans on their behalf.
·         Establishment of Ghana Infrastructure Investment Fund (GIIF): The Fund will apply market-based principles to the way we contract loans for commercial infrastructure. The goal is to set up a “rated” agency, borne out of our Petroleum Wealth Funds under the PRMA (notably the ABFA), that can leverage the markets to support nation’s borrowing for commercial infrastructure.
·         Establishment of Sinking Fund Account: In the 2014 Budget, the government announced that it will “cap” the Ghana Stabilization Fund (GSF), under the PRMA, at US$250 million to enable it open Debt Service and Sinking Fund Accounts to start paying down the country’s “bullet” loans—notably, treasury bills and medium- and long-term domestic and foreign (sovereign) bonds.
·         Less reliance of Sovereign Guarantees: Cabinet has approved the setting up of SOE and project debt repayment accounts as well as the use of alternative loan guarantee and insurance instruments. For example, the Government recently utilized a share of Ghana’s IDA resources to apply for the World Bank’s Partial Risk Guarantee (PRG) scheme to support GNPC’s offtake of gas under the SANKOFA [ENI-VITOL] field’s development.
·         Moratorium on new Loans and Contracts: Mindful of the increase in public debt—and while in the process of setting up the alternative policies noted above—the government placed a moratorium on the award of new contracts and loans, unless approved through an enhanced Cabinet process.
·         Prudent public debt computation framework:  The policy of recovering loans will extend to non-commercial infrastructure projects that can make a positive contribution to loan repayments as well as maintenance or replacement of equipment and other assets from the fees and charges that consumers pay for the use of goods and services.

The basis of this “New Debt Management Policy” lies in the use of commercial loans by SOEs that benefit from the loans and use them to render services for income and fees. It requires that they sign On-lending Agreements with, and establish joint Escrow or Debt Service Accounts with MOF to repay the loans from the fees and charges they collect from consumers. Once this takes root, we do not have to put the loans on the taxpayer and bemoan the level of our public debt, even as we develop our infrastructure.

The IEA trajectory of debt also appears to ignore the medium-term prospects for the country and, hence, did not make room for the potentially significant GDP growth. Evidence shows clearly that the rate of growth and base of Ghana’s GDP went up significantly between 2010 and 2012, mainly due to the rebasing of the GDP, fast growth of the services sector, increased construction activity, rebound of cocoa production, and exports of crude oil (for the first time). In this regard, the 2015 Budget notes that the period from 2015 through 2017/18 will experience further increase in crude oil and, notably, the advent of gas production.

The cocoa sector also looks very promising as well as the prospects of the import substitution measures being implemented in the rice, poultry and pharmaceutical subsectors in line with President Mahama’s transformation agenda.

Furthermore the analysis fails to consider the optimum impact of projects such as the Gas Processing Plant at Atuabo in the Western Region, which has the capacity to supply 120million standard cubic feet of gas per day from the Jubilee Fields to off takers for the generation 500MW of power. The Gas Processing Plant will also produce 500tonnes of Liquefied Petroleum Gas to meet 75% of our present national demand per day. This project saves GHC500million annually in crude oil imports for the purposes of firing thermal plants. Potential tax revenue flows into the Petroleum Holding Funds, especially the Budget Funds under the PRMA has also not been taken into account by the IEA’s analysis.

We therefore disagree with the IEA’s dire projection of a debt/GDP ratio that does not take account of potential rapid GDP growth and the new debt management policy.

The IEA Statement also ignores various fiscal stabilizers that have become active in a few years only: These include the establishment of the Stabilization Fund under the Petroleum Revenue Management Act (PRMA, Act 815), the hedging of crude oil imports and the National Petroleum Authority (NPA)’s use of a price stabilization margin in the petroleum price build up. In particular, the Stabilization Fund had accumulated US$590 million dollars between 2012 and 2014, of which, US$288 million was used to service our debt and GHC50 million used to start the Contingency Fund under the Constitution. More importantly, given the fall in crude oil prices and envisaged decline in petroleum revenues to the Budget, Cabinet has approved the use of fifty percent (50%) of the Fund to support the Budget, as required by the PRMA.

Finally, it is erroneous to assert that Ghana does not have fiscal rules or laws by simply pointing to gaps and ignoring the overall status quo.  Ghana has a comprehensive statutory framework to support sound debt and public financial management including the 1992 Constitution (Art. 174 to 189), the Financial Administration Act (Act 654) and the Financial Administration Regulations (LI 1802). The BOG law includes limits on borrowing from the central bank. Furthermore, ECOWAS single convergence criteria—to which Ghana has subscribed—contains several fiscal rules.

We wish to assure that the Ministry of Finance is available to provide information to  all researchers who require information to support their work. With this statement, we believe subsequent publications and commentary thereof will adopt a symmetrical approach to the subject.


Hon. Seth Terkper
(Minister for Finance)


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