2021 budget fails to address key governance questions in the petroleum sector – NRGI
Adnan Adams Mohammed
An international resource governance organization has slammed the country 2021 budget as it fails to address key governance questions around the petroleum sector revenue management.
It indicated that, despite the 2021 budget’s attempt to address concerns around petroleum revenue spending, keys issues, such as, what will happen to unspent revenue and what constitutes public investment, among other issues were not duly addressed.
Public investment is generally understood to be spending on assets or infrastructure with long lifespan. But the lack of a clear explanation of Ghana’s public investment expenditures has over time led to various approaches by the Ministry of Finance on where to allocate the funds, leading to disagreements among different stakeholders.
For example, between 2011 and 2016, 70 percent of oil revenue designated for budget support (the Annual Budget Funding Amount, or ABFA) was allocated to capital spending, which includes roads, agriculture, education, and health infrastructure, against 30 percent allocated to recurrent expenditure, which typically covers payments for services and supplies.
“This changing interpretation of “public investment expenditure” has led to recurrent expenditures for which volatile petroleum revenues are ill-suited”, the Natural Resource Governance Institute (NRGI) shares their worry in recent publication.
Previous NRGI research has emphasized the challenges with spending volatile resource revenues on recurrent expenditure. There is broad consensus that public investment in key sectors can enhance growth.
The Petroleum Revenue Management Act (PRMA) Section 21(4) states: “For any financial year, a minimum of seventy percent of the Annual Budget Funding Amount shall be used for public investment expenditures consistent with the long-term national development plan or with subsection (3).” In 2017, the government prioritized spending of oil revenues on “physical infrastructure and service delivery in education,” in line with the PRMA.
Civil society organizations have raised concerns about whether this spending was consistent with the Ministry of Finance’s previous interpretation, which had restricted public investment expenditure to capital spending. Between 2017 and 2019, recurrent expenditure on the Free Senior High School Program, which included the payment of fees and supplies, represented an average of 52 percent of ABFA.
Also, the Public Interest and Accountability Committee (PIAC) has at several occasions called on the government to adhere to the Ministry of Finance’s previous interpretation of the PRMA but the government argued that investment in education qualifies as public investment expenditure and that is not entirely synonymous with capital expenditure, with an explanation included in the 2021 budget.
Consequently, the NRGI wants the government to clarify its operational meaning of “public investment” in relation to the petroleum revenue expenditure.
“Ghana’s government should clarify the definition of public investment expenditure to refer to only non-recurrent expenditure in the PRMA Regulations (L.I. 2381) or in a PRMA amendment. This would also encourage consistent implementation of the rule by future ministers of finance.”