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PFM Act to guide local government authority borrowing

By: Fred Yaw Sarpong

The bill, Public Financial Management (PFM) Act 921 which has been passed into law by Parliament is to guide public institutions especially the local government authority borrowing. The law was pass on 3rdAugust, 2016

According to the law, local government authority, a public corporation or state-owned enterprise is liable for the debt and other obligations without recourse to Government, unless otherwise explicitly guaranteed by Government in accordance with this Act.

Madam Eva Esselba Mends, the Chief Economic Officer and Group Head of PFM at the Ministry of Finance told the Daily Express that the law involves a lot but it also give instruction to how state institutions can borrow especially with the  local government authority.

She mentioned that there is no specific law in place that gives direction as to what local authority can do when it comes to borrowing by the authority. Other public corporations sometimes borrow with huge amount for their operation but local government authority is limited when it intent to borrow.

Madam Mends said even though this PFM law gives some indication as to how borrowing by local government authority can be done, there will be a specific law for local government borrowing in place.

She said there was a local government law which allow borrowing of 20,000 cedis maximum by all local authorities and therefore limited the ability of a local authority to borrow larger amount.

“What we are doing with this PFM law is that, we are providing some arrangement for the Ministry of Finance to allow the local government authority to access loans and financial credits,” she added.

But the new framework is silent on a specific amount an authority or an assembly can borrow. However, Madam Mends said the amount will be determined by the medium term strategic document which will be in place and it will determine the borrowing level for all public institutions in the country.

“The authority will be allowed to borrow base on the national ability to borrow. No public institution will just wake and borrow especially with this PFM Act in place,” she stated.

She pointed out that this new initiative from the PFM Act is different from the Municipal Finance bonds introduced some years back.

“The PFM Act provide broad framework for borrowing by all public institutions. The Municipal Finance Bond was limited to only local authorities.”

However, there will soon be a law to guide local authority borrowing in the country which will be a subsidiary legislation, apart from the Public Finance Management Act.

She told Daily Express that Ghana’s new public financial management (PFM) law act 921 started in 2015 as a follow up from the Government Integrated Financial Management Information System (GIFMIS) project and all the other reforms.

The objective is to address significant weaknesses especially in fiscal policy formulation, budgeting, commitment control, transparency and accountability, debt management and, improve service delivery through the monitoring of results.

The Daily Express told that extensive consultation was done with the ministries, department and agencies (MDAs), Civil Society organizations professional bodies and among other relevant bodies.


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