The passage of the Budget Responsibility Act (BRA) does not augur well for fiscal management at a time the country should be harnessing extra oil output and resources to improve public and private investment in the real sector of the economy to create more sustainable jobs, Mr. Seth Terkper, a former Finance Minister, has said.
Speaking in an interview with the B&FT, Mr. Terkper said the Act lacked public consultations and debate.
“Since, compared to the PFMA, the passage of the BRA lacked public consultations and debate. The exceptions made in the latter do not serve fiscal management well, at a time we should be harnessing our extra oil output and resources to improve public and private investment in the real sector to create more sustainable jobs,” he said.
He said the requirement to pass the Public Financial Management Act (PFMA) Regulations (Section 101) to cover more comprehensive set of fiscal rules is a more credible alternative to enhancing the country’s budget, public accounts, audit, and macro-fiscal environment.
He explained that among others, Section 101 covers rules for the public accounts, recording and controlling expenditure commitments, management of government assets and debt, audit committees, limits on borrowing by local governments, public corporations and SOEs, Treasury Single Accounts, evaluation of investment projects, and remittance of claims by the minister.
“Unless the stance of BRA is to fulfil a political promise or meet some other obligation, it would have been sufficient to amend the PFMA and focus on the Regulations since the entire fiscal responsibility rules in the BRA exist in the PFMA and in relatively good shape.
Further, the exclusion of, and exceptions to, important PFMA provisions appear to give a ‘pass’ to a government which, while in opposition, touted the need for stricter fiscal rules,” he stated.
The new Budget Responsibility Act (BRA), 2018 (Act 982), according to Mr. Terkper is not original since it only reproduces and modifies Sections 12 to 18 (Macroeconomic and Fiscal Policies component) of the Public Financial Management Act (PFMA), 2016 (Act 921).
He added that some of the BRA changes rather minimize the overall effectiveness or impact of the PFMA and Petroleum Revenue Management Act (PRMA), 2011 (Act 851).
He explained that the first substantive BRA quantitative criterion focuses on the fiscal deficit and reinforces the sub-optimal stance in the annual budgets that define deficits as “fiscal anchor” for PFM practice in Ghana.
This, he said is narrow and not helpful to a comprehensive coverage of fiscal management. In substance, it is only similar to Bank of Ghana’s (BoG) equally narrow stance on “inflation targeting” in relation to monetary and financial policy.
“These MoF and BoG fiscal and monetary positions continue to minimise the wider breadth of macroeconomic policy objectives under the 1992 Constitution. This is why the PFMA has more fiscal indicators on fiscal sustainability.
It is our view that the passage of the more comprehensive draft PFMA Regulations, in abeyance now for two years — despite the undertaking in paragraph 829 of the 2017 Budget — would have better served the nation’s fiscal policy, rules, and management.”
The BRA’s fiscal responsibility rules are designed to correct distorted incentives; ensure fiscal discipline; prevent fiscal slippages; and improve fiscal and debt sustainability.
The Act, he said, omits a key objective from the Bill presented to Parliament– achieving “a better match of revenues with expenditures, particularly in good times”.
The crisis since 2008, and intensified by emerging market crisis in 2015, that led to a BRIC meltdown, had a negative impact on Ghana’s economy.
These resulted in low global demand, growth and drastic fall in crude oil prices and the resultant domestic stress from falling commodity prices and misaligned policies (e.g., disruption in gas supply from Nigeria, subsidies and single spine).
In contrast, he argued that since 2017, Ghana has tripled and significantly increased its crude oil and gas output, respectively, from further investments in three oil fields (not one, with “turret bearing” issues); and benefited from increases in crude oil price.
“The government inherited fiscal buffers under PRMA and ESLA; and repairs to the damaged West Africa Gas Pipeline (WAGPL) as well as emergency power plants initiative that resolved the power crisis substantially.
Despite these good fortunes, an economic policy that focuses on consumption and relied on “offsets” instead of payment of arrears has led to sluggish non-oil real GDP growth, increased public debt, high levels of arrears, and unrealistic decline in fiscal deficit.
In particular, contrary to the benefits of strict BRA practices, we have seen some depletion and relatively slow rebuilding of PRMA buffers as well as recession in a previously vibrant services sector.”