Seth E. Terkper
(former Minister for Finance)


The first call on Government to go to Parliament now was in an article “Reading IMF Between the Lines”, after the IMF Board’s Statement on the 2019 Article IV consultations. It called for the correction of parallel numbers on the economy, as presented in the 2020 Budget and what GOG authorized for the Board—while the House was debating the Budget.

The second was when President Akuffo-Addo directed payments to depositors affected by the banking crisis. This seemed ultra vires since the 2020 Budget has no provision to pay such substantial bailout costs—not even as memorandum, as GOG now uses to sidestep well tested fiscal rules for exceptional expenses. Without heeding the call, the Receiver has started cash payments and bond issuance worth about Ghc5 billion to the depositors.

This third call relates to the proper assessment of the impact of Corona (COVID-19). The President has asked MOF to set aside US$100 million (about Ghc560 million) to support the Health Ministry and allied agencies—without a budget line and, as the Minister admitted, in anticipation of IMF, World Bank and donor contributions in a Beyond Aid era.

A comprehensive Fiscal Statement to the House has precedent and it is prudent and proactive, as advanced, emerging market (EM), and developing states are doing with fiscal, monetary, and real sector measures. The latest is ongoing processes in the US Congress and Senate. Part I deals with the delicate fiscal situation while Part II examines missed opportunities in continuing to use the petroleum funds to build enough fiscal buffers.

The delicate fiscal situation

If sustained, as warned, the potential impact of the Corona will worsen an already delicate fiscal situation which, ironically, is from managing a delicate but risky ability to set aside several fiscal rules since 2017.

a) The Corona Virus (COVID-19) economic threat

As with SARS and Ebola, the economic impact of Corona worsens the direct health risks from measured and panic situations. At the outset, the immediate impact of decisive lock-down in Wuhan and some China provinces disrupted global supply chains; the current restrictions on travel and movements in countries has worsened general global economic activity.

Following early signs of falling global demand, OPEC’s usual attempt to control crude oil supplies to stabilize price has led to a price war between Saudi Arabia and Russia—and a steep fall in prices to sub-US$30s per barrel (pbl) or below. The spread of COVID-19 and restrictions in countries, combined with the slowdown in economic activity, have left ministries of finance and central banks scrambling for measures to minimize the damage, These include reduction in interest rates and stimulus fiscal packages for businesses, workers, and households.

The World Bank, IMF, AfDB and others have made significant amounts available to help vulnerable states, while awaiting their inevitable revisions of growth rates and other indicators. Ahead, we can confidently predict the effect on Ghana’s economy: fall in global demand leading to falling commodity prices for crude oil, cocoa, and gold prices. The secondary effects are lower growth and shortfalls in foreign exchange and revenue flows to the Budget.

The similarities with Ebola, which COVID-19 could dwarf, include falling crude oil prices between late-2014 and end-2016 to sub-US$40 pbl, compared to US$99 pbl in the 2015 Budget. Together with experience from the global financial crisis and BRIC meltdown, Corona warrants prompt Executive and Parliamentary action to clarify its economic impact.

b) Tight fiscal situation and Corona

As a new oil-producing country, the point is if we learnt any beyond blaming past effects of low growth rates and higher deficits on non-performance. The continuous setting aside of fiscal rules in the 2020 Budget and not adhering to the oil-based fiscal buffers since 2017 make it difficult to adjust to the ongoing fiscal and economic situation.

i) Burden of wages and interest payments: Tables 1 and 2 show that Ghana spends about 98 percent of tax revenue on these costs, which as non-discretionary and statutory, leaves little room for making flexible decisions during crisis. The trends portray expensive loans, despite the impression given over the last three (3) years.

Table 1: Revenue and expenditure: Nominal (Ghc)

1/Excludes Arrears (Source: MOF Budgets and Fiscal Budgets)

Table 2: Expenditure (% of Tax Revenue)

Source: MOF and Fiscal Tables

ii. Fall in crude oil price worsens fiscal situation: The sharp fall in tax revenues is from the Petroleum Funds flow under the Petroleum Revenue Management Act (PRMA), as a result of the price war between Russia and Saudi Arabia. Early projections suggest that the ABFA shortfall could rise to nearly Ghc 250 million.

iii. Reduction in pump prices adds to pressure: Under liberalization, GOG increases petroleum prices when crude prices rise and, hence, it is responding the opposite step of reducing them when the price falls. This will mean less petroleum tax revenues.

iv. Not prudent to retain temporary taxes: The temporary taxes (i.e., rise in corporate income tax and import duty rates) were for austerity since the Rawlings era, which lapse with positive economic change. The quadrupling of oil revenues from three (3) fields made this government the most fortunate to remove them in 2017. Hence, the extension removes a major fiscal handle used in crisis.

v. Low estimates for arrears impede emergencies: A feature of budgets since 2017 is the relatively low provision for annual arrears that is, curiously, spent to the pesewa. The aim to post impressive fiscal outturns makes it incredible for a US$100 million Corona pledge to translate to about 35 percent of the entire arrears provision for 2020.

vi. Cost of Free SHS and special projects: The 2020 Budget is also unique in not disclosing the cost and intake of a large number of free SHS students that will enter tertiary schools with this fiscal year in September 2020. This is also true of the full cost of completing many special projects in 2020.

vii. Higher deficit with dwindling borrowing space: The points above will result in a higher deficit and financing through loans or grants—a slap to the “Beyond Aid” dream. With a public debt at 63 percent of GDP at end-2019 before the 2020 first quarter Sovereign, bailout, and other bonds, the space for more borrowing is also closing.

The 2020 Budget itself gives a deceptively positive fiscal view by excluding offsets (Table 1: isolated Ghc5,035 million or 15 percent) and exceptional expenditures (e.g., bailout costs and energy arrears). The IMF’s adjustments (next section) show a better pre-Corona position and explain why making further adjustments will be difficult.

c) Adjusted IMF fiscal or budget deficit and public debt numbers

A reality check is that the fiscal outlook from the IMF Board is worse than the 2020 Budget position. Table 3 shows differences in the deficit and public debt; whch the Fund also back-dates for 2017 to 2019 and elevate for 2020 and medium term.

Table 3: Central Government Budget (Cash Basis)

Source: IMF (Article IV Consultation Statement); Note 3: Excludes discrepancy

Table 4 and Figure 1 also show the IMF positions on public debt, which is worse than the disclosures in the 2020 Budget and recent State of the Nation Address (SONA).

Table 4: Debt-to-GDP ratio (Domestic, External & Total)

Source: IMF and MOF

Figure 1: Debt-to-GDP ratio: (a) total and (b) change)

Source: IMF and MOF, Ghana

The following points from the tables and graphs stress the need for changes to the fiscal performance and outlook.

• IMF retroactively adjusts the budget deficits for 2018 and 2019 to 7.0 percent, compared to GOG’s 3.7 percent and 4.7 percent, respectively.
• Its pre-Corona deficit of 6.4 percent for 2020 (compared to GOG’s 4.7 percent) is higher than the end-2016 deficit of 6.3 percent.
• The Fund gives multi-year (2020 to 2024) commitments for bailout and energy sector costs, of about 1 percent of GDP, that is not in the 2020 Budget.
• It elevated the debt-to-GDP ratio to 63 percent before MOF and BOG did officially.

GOG must bridge the gaps with IMF, as it always does in Article IV or Program contexts, notably for bailout costs and energy arrears of approximately 1.5 percent in 2020 and 1 percent of GDP from 2020 to 2024.


Consumption is the main element of our fiscal performance but Ghana borrow to support its expensive social intervention programs. Even the rich states “target” such programs for low-income persons, as the current Minister intimated against the wrath of hardliners. Former President Mahama’s call for a national dialogue on key programs is worth considering since it is likely motivated by his and nation’s (single spine) wage overrun experience.

While popular now, our unsustainable path to using virtually all resources and, gradually, loans for consumption is disastrous. Successful nations call on their citizens to work hard, be innovative, and sacrifice—especially, the rich and middle-class that understand that they cannot be part of state largesse. Rather, tax and expenditure policy require that they shoulder part of burden of nation-building on behalf of others.

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