News Guide Africa

Tag: Public Financial Management Act

  • ‘We will build a new culture that promotes and sustains fiscal discipline’ – Fin Minister

    The Finance Minister, Dr. Cassiel Ato Forson, has said that key lessons from the Annual Budget Performance Report (BPR) as part of the Public Financial Management Act, 2016 (Act 921), as amended, will guide the government’s choices in the post-2024 era as they work to reset economy towards the “Ghana we want.”

    Dr. Forson says that “We must, and we will, build a new culture that promotes and sustains fiscal discipline.”

    In a statement he issued on the 2024 Consolidated MDAS Annual Budget Performance Report, he recounted that the years prior to 2024 proved to be very difficult globally.

    “In Ghana, we saw the most ignoble deterioration of the economy and broader societal well-being. Inflation galloped, exchange rate depreciated sharply and remained volatile. Interest rates rose and credit became simply unaffordable. Ghana, therefore had no option but to seek support from the IMF through the Extended Credit Facility (ECF) programme on the heels of an expansive domestic and external debt restructuring which had severe consequences,” he said.

    In that context, he added, the year 2024, being an election year, was uniquely significant.

    The then government, he said, set for itself macro-economic targets focused on re-anchoring fiscal and debt sustainability.

    “The promise was to course-correct the misalignment in key indicators to support the economy. Despite the progress made under the IMF programme, the macroeconomic environment remained fragile. The economy remained fragile, with 2024 recording significant fiscal slippages. The primary deficit worsened, and the year ended with accumulation of huge central government arrears amounting to GH¢67.5 billion representing 5.7 percent of GDP,” his statement said.

    “The lessons from this challenging national economic experience are there for everyone: fiscal slippages are costly and far-reaching.”

    Dr. Forson noted that these experiences validate the prudence in requiring the preparation of the Annual Budget Performance Report (BPR) as part of the Public Financial Management Act, 2016 (Act 921), as amended.

    “Beyond meeting the requirements of the PFM Act, the BPR enables us to assess the performance and impact of our policy choices and take corrective measures where necessary. Furthermore, in accordance with the provisions of Section 27 of the PFM Act, stakeholders will receive updates on the actions taken to implement the recommendations of Parliament in respect of the report of the Auditor-General as well as updates on multi-year expenditure undertaken in 2024.

    “I must state that the key lessons from this BPR will guide our choices in the post-2024 era as we work to reset economy towards the Ghana we want. We must, and we will, build a new culture that promotes and sustains fiscal discipline. As is always the case, this BPR is the product of cross-sectoral collaborations. The Ministry of Finance is thankful to the Ministries, Departments and Agencies who provided critical inputs and validated information. The efforts of the staff of this Ministry, who have coordinated the preparation of this BPR, are also acknowledged. Your sense of professionalism and commitment to the national cause is indeed endearing. As a Ministry, we will stand ready to provide clarification and respond to any related queries through the established channels, including the Right to Information Platform.

    “A new era is upon us. We have a great opportunity to rewrite our most recent economic history in a positive light. Let us join forces and work together to build the Ghana we want. It is our promise and duty to do so,” he said.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

  • Ghana’s Deficit: Enforcing strict adherence to PFMA is the way forward

     

    Adnan Adams Mohammed

     

    Public concerns heightened on how Ghana government could prudently manage its high budget and fiscal deficit.

     

    Ghana’s budget deficit has been consistently high, ending 2022 with a gap of about 9.0% of Gross Domestic Product.

     

    To this, a former Finance Minister has advised the government to tighten the rules of the Public Financial Management Act to cut the country’s budget deficit significantly. The finance expert wants the government to adopt a comprehensive approach to managing the country’s finances to reduce the high fiscal deficit.

     

    “Enforcing the Public Financial Management Law is key to addressing all these financial infractions”,  Seth Terkper posited in an interview last week.

     

    Although, the government is taking some extra measures to limit the amount of debt that can be incurred by any administration, it has proposed a debt target as part of fiscal reforms under the IMF programme.

     

    But Mr. Terkper believes that enforcement of the PMF Law will be the game changer.

     

    “As we continue, I would like to know from government documents if it is a memorandum of economic or financial policy. I’m saying that we do have the provisions; they’re already in the Public Financial Management Act which was passed in 2016 (Act 921) and the budget responsibility Act which you mentioned is an extract from the PFMA”.

     

    “So there’s the need for tightening the rules”, he added.

     

    He further stated the Public Financial Management Law is to regulate the financial management of the public sector by vigorously ensuring that all rules and regulations are adhered to.

     

    “The debt is from borrowing and the borrowing is from your deficit and the deficit is from revenue minus expenditure and this is the purpose of the Public Financial Management Act; to cover this in one loop which you know amended the financial administration act.

     

    Already, as part of measures to meet the dictates of the International Monetary Fund vis-a-vis the recently-approved US$3 billion bailout, government is expected to prioritize fiscal adjustments to ensure it meets the performance criteria for the disbursement of the other loan tranches.

     

    In this regard, President Nana Akufo-Addo has admitted that Ghana’s fiscal deficit is “way above” the five per cent ceiling set by the fiscal responsibility law, indicating that there was a need to bring it down, as he pledges his government’s commitment to cutting expenditure.

     

     

    The Fund has already indicated that, Ghana government will be under pressure to cut down its expenditure following the approval of the country’s US$3 billion deal.

     

    “Rationalisation of our expenditure is something that we have given the assurance [about],” President Akufo-Addo said while speaking at the Qatar-Africa Economic Forum in Doha. “Domestic revenue mobilisation is absolutely critical for us, and, already, we are seeing signs.”

     

    Also, he said: “We have a fiscal responsibility law in Ghana that has pegged our fiscal deficit at five per cent but, already, we are way above that,” noting, “and the sooner we can bring that to more acceptable levels, the better for us.”

     

    In an interview last week, the IMF Representative in Ghana, Dr. Leandro Medina posited that; “On the fiscals there is quite a sizeable adjustment in the 2023 budget and what we expect in the duration of the program, on the structural transformation, it has to do with the reforms and measures that improve the business climate and the growth of private sector”,

     

    “So, there are a lot of reforms within the context of the program that look at what you can do within these three years to ensure that there is a strong foundation in growth and that is the effect of that structural transformation”, he added.

     

    The Fund has also justified the adoption of three mobilization measures as well as the increase in utility costs as Ghana attempts to fix its balance of payment problems.

     

    Despite criticisms, the Excise Duty, Growth and Sustainability, and Income Tax Amendment laws aim to generate GHS4 billion for the country each year have been passed.

     

    These, along with the expected tariff increases in June, are deemed crucial components of the country’s US$ 3 billion, three-year Extended Credit Facility with the IMF.

     

    Dr. Leandro Medina, argued in favour of adjustments in the face other tough economic conditions.

     

    “The revenue measures that have been passed between December and April are part of the prior actions. It’s very important to mobilize revenue. Revenue to GDP in Ghana is very low as compared to other countries. Ghana is making a huge effort to increase revenue, and this will be done mainly by increasing the tax base. What is important to say is that this is a large and front load fiscal consolidation”, he added.

  • ‘Currency Board’ will effectively address monetary management infractions – IEA

    ‘Currency Board’ will effectively address monetary management infractions – IEA

    Adnan Adams Mohammed

     

    As Ghana visage for a way out of its cyclical economic management mess, the government is advised to establish a ‘Currency Board (CB)’ to help in the monetary management process of the Bank of Ghana.

     

    The ‘Currency Board’, the Institute of Economic Affairs (IEA) believes will help stabilise the cedi and prevent instability in the economy in times of shocks. The Institute also to limit the Central Bank lending to the government

     

    These monetary control and management factors deficiencies have been the bane of Ghana’s economic management. According economists, the CB system has limited inflation, checks currency volatility and better position balance of payments.

     

     

     

    is pushing for the establishment of a Currency Board (CB) to limit the Central Bank lending to the government, a move it believes will stabilise the cedi and prevent instability in the economy in times of shocks.

     

    According to the institute, since

     

    “You see, a Currency Board (CB) is a rigid monetary management system that is hedged in strict rules, with little room for discretion. The CB does not lend to government and it covers its currency fully by foreign exchange”, Lead Researcher at the Intitute, Dr. John Kwakye, in a paper published and titled “Institutionalising Fiscal Discipline and Macroeconomic Stability for Sustained Growth in Ghana: The Constitutional Pathway” noted.

     

    “The CB system has limited inflation, the currency does not depreciate and balance of payments crises are rare. This is close to the system in our Francophone neighbours, who restrict their Central Bank lending to governments and provide adequate cover for their currency, the CFA.”

     

    IEA buttressed its points that, the Francophone countries system guarantees them low inflation and a stable currency, but “you have Ghana that has chosen an independent Central Bank to conduct discretionary monetary policy’.

     

    It also blamed the Central Bank of Ghana for some of the economic woes, saying, “The Central Bank provides significant lending to government and covers the cedi with limited foreign exchange (40% in the Act). No doubt we face perennial price and currency instability!”

     

    “It is for this reason that some of us have argued that if we continue to abuse policy discretion and pay a high price for it in terms of macroeconomic instability, then we better hedge our policies by rules; tie our economic managers hands, so that we can enjoy rules-driven macroeconomic stability!”, it added.

     

    Finally, the IEA said despite Ghana having rules such as the Public Financial Management Act, the Bank of Ghana Act and the Fiscal Responsibility Act, the rules have not work because of lack of political way.

     

    “Let me say that it is not that we have had no rules at all in fiscal and monetary management. In fact, I can mention a couple of them, such as the Public Financial Management Act, the Bank of Ghana Act, the Fiscal Responsibility Act and the relevant provisions in the 1992 Constitution, which represent attempts to introduce rules in our fiscal and monetary management system”.

     

    “However, there are serious questions regarding not only their enforcement but their effectiveness as well. And that is the reason we feel strongly about the need to give constitutional backing to some of these rules”, it concluded.

     

  • ‘Currency Board’ will effectively address monetary management infractions – IEA

    ‘Currency Board’ will effectively address monetary management infractions – IEA

    Adnan Adams Mohaammed

     

    As Ghana visage for a way out of its cyclical economic management mess, the government is advised to establish a ‘Currency Board (CB)’ to help in the monetary management process of the Bank of Ghana.

     

    The ‘Currency Board’, the Institute of Economic Affairs (IEA) believes will help stabilise the cedi and prevent instability in the economy in times of shocks. The Institute also think it will help to limit the Central Bank lending to the government

     

    These monetary control and management factors deficiencies have been the bane of Ghana’s economic management. According economists, the CB system has limited inflation, checks currency volatility and better position balance of payments.

     

    “You see, a Currency Board (CB) is a rigid monetary management system that is hedged in strict rules, with little room for discretion. The CB does not lend to government and it covers its currency fully by foreign exchange”, Lead Researcher at the Intitute, Dr. John Kwakye, in a paper published and titled “Institutionalising Fiscal Discipline and Macroeconomic Stability for Sustained Growth in Ghana: The Constitutional Pathway” noted.

     

    “The CB system has limited inflation, the currency does not depreciate and balance of payments crises are rare. This is close to the system in our Francophone neighbours, who restrict their Central Bank lending to governments and provide adequate cover for their currency, the CFA.”

     

    IEA buttressed its points that, the Francophone countries system guarantees them low inflation and a stable currency, but “you have Ghana that has chosen an independent Central Bank to conduct discretionary monetary policy’.

     

    It also blamed the Central Bank of Ghana for some of the economic woes, saying, “The Central Bank provides significant lending to government and covers the cedi with limited foreign exchange (40% in the Act). No doubt we face perennial price and currency instability!”

     

    “It is for this reason that some of us have argued that if we continue to abuse policy discretion and pay a high price for it in terms of macroeconomic instability, then we better hedge our policies by rules; tie our economic managers hands, so that we can enjoy rules-driven macroeconomic stability!”, it added.

     

    Finally, the IEA said despite Ghana having rules such as the Public Financial Management Act, the Bank of Ghana Act and the Fiscal Responsibility Act, the rules have not work because of lack of political way.

     

    “Let me say that it is not that we have had no rules at all in fiscal and monetary management. In fact, I can mention a couple of them, such as the Public Financial Management Act, the Bank of Ghana Act, the Fiscal Responsibility Act and the relevant provisions in the 1992 Constitution, which represent attempts to introduce rules in our fiscal and monetary management system”.

     

    “However, there are serious questions regarding not only their enforcement but their effectiveness as well. And that is the reason we feel strongly about the need to give constitutional backing to some of these rules”, it concluded.