FISCAL SCORECARD

PART II: FISCAL DEFICIT REMAINS

ABOVE 5 PERCENT

By Seth E. Terkper

Introduction

Part II shows that the budget and fiscal balances have not improved, notably, with
inclusion of bailout costs and exclusion of “offsets”. It continues to track the alleged end-2016
election year budget overruns which successive Budgets now lower from 10.3 percent (2017) to
9.3 percent (2018) and 6.5 percent (2020 Budget). These “offsets” neutralize an inflated end-
2016 amount of GHc5.03 billion to avoid carrying it forward to 2017.

Part 1 on the Public Debt notes that its rate of accumulation and stock have deteriorated
since 2016, despite recent significant fiscal endowments from three petroleum fields (i.e., TEN,
Jubilee, and Sankofa) since 2017—compared to only Jubilee.

Budget and fiscal balances

The budget deficit and fiscal balances measure the difference between total revenue and
total expenditure. This cash portion of the Budget measures the difference between (a) actual
cash receipts from tax and non-tax revenues and (b) actual cash payments on employment,
interest, recurrent, and capital expenses.

Budget surpluses (i.e., revenue above expenditure) are possible but deficits are more
common in developing states with many economic constraints. The fiscal programs for high-
and mid-income states also show planned deficits and borrowing—mainly to finance capital
budgets as part of cogent debt management strategies that include refinancing and repayments
of debt at maturity.

The fiscal balance is the result of adding routine and exceptional arrears costs to—and
subtracting occasional exceptional receipts from—the budget deficit. As noted later, the current
government is violating this rule by excluding the exceptional banking sector “bailout costs”
from “above-the line” overall deficit to make the fiscal consolidation impressive.

Revenue, expenditure, and budget deficit

Table 1 shows the high-level provisional outturn for revenues (i.e., taxes, income and
fees, and grants); expenditures (i.e., compensation, interest, goods and services, and capital or
development); budget deficits or fiscal balances; and financing (borrowing and debt) from 2013
to 2020. They are discussed in detail later in other Parts of these article.

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Table 1: Revenue, expenditure, and grants (2013-2020)

Revenue, Expenditure & Deficit

2020
2013 2014 2015 2016 2017 2018 2019
Budget
Revenue 19,471.6 24,745.5 32,040.4 33,678.2 41,497.9 47,636.7 54,565.0 67,071.2
Expenditure 27,463.0 31,962.2 38,589.9 51,125.0 51,985.9 58,197.0 70,189.8 84,508.9
o/w Other Outst claims 0 0 0 5,035.6 0 0 0 0
Deficit (7,991.5) (7,216.7) (6,549.5) (17,446.9) (10,488.1) (10,560.2) (15,624.8) (17,437.7)
Source: Fiscal Tables and Budgets

Table 1 shows the “isolated” Ghc5.03 billion offset that has been tracked in MOF data
in Budgets, Mid-Year Reviews, and Website since 2017.

 Arrears as accruals: showing arrears (i.e., “other outstanding claims”) in Table1 is an

anomaly since this part of the fiscal framework deals with only “cash” entries.
 Fiscal offsets: as shown in Tables 3 and 4, MOF uses two items (i.e., Ghc4.29 billion
plus Ghc0.74 billion equal to Ghc 5.03 billion) to “offset” or neutralize this amount.
 Isolated fiscal items: As Tables 1 to 4 show, the Ghc5.03 billion line has no precedents
and antecedents and appear in only 2016—also as a “grey” block in Figure 1.

Table 2 and Figure 1 also show the real (percent of GDP) impact of the “standalone”
Ghc5.03 billion (i.e., 3 percent of GDP) item at end-2016.

Table 2: Revenue, expenditure (percent of GDP)

Revenue, Expenditure & Deficit

2020
2013 2014 2015 2016 2017 2018 2019
Budget
Revenue 15.7 15.9 17.8 15.7 16.2 15.8 15.8 16.9
Expenditure 22.2 20.6 21.4 23.8 20.3 19.4 20.3 21.2
o/w Other Outst claims 0.0 0.0 0.0 2.3 0.0 0.0 0.0 0.0
Deficit (6.5) (4.6) (3.6) (8.1) (4.1) (3.5) (4.5) (4.4)
Source: Fiscal Tables and Budgets

Figure 1: Graphs of revenue, expenditure, and deficit

Revenue, Expenditure & Deficit Revenue, Expenditure & Deficit

[Nominal value] [Percent {%} of GDP)
25.0 4.0
100,000.0 10,000
Deficit/Fiscal Balance
Revenue/Expenditure

2.0
Deficit/Outs. Claim

80,000.0 5,000 20.0

0.0
Rev & Expdx

0 15.0
60,000.0 (2.0)
(5,000) (4.0)
40,000.0 10.0
(10,000) (6.0)
20,000.0 5.0
(15,000) (8.0)
0.0 (20,000) 0.0 (10.0)
2013 2014 2015 2016 2017 2018 2019 2020 2013 2014 2015 2016 2017 2018 2019 2020
Budget Budget

` Revenue Expenditure o/w Other Outst claims Deficit Revenue Expenditure o/w Other Outst claims Deficit

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Source: Fiscal Tables and Budgets

Fiscal balances—with offsets but excluding exceptional costs

The terminology changes in bringing down the Budget deficit or balance [Tables 1 and
2) as the Fiscal Balances on Commitment and on Cash basis:

 Balance on commitment basis: brings forward—and, therefore, identical to—the budget

deficit as the first level of fiscal balance on “commitment” basis.
 Balance on cash basis: adds routine and exceptional arrears to the “fiscal balance on
commitment basis” to determine the balance on “cash” basis.

Tables 3 shows the “accrual” part of the fiscal tables in nominal values—with offsets
but excluding the exceptional bailout costs that appear as Appendix Memoranda (see later).

Table 3: Fiscal balances—cash and commitment basis

Deficit and Fiscal Balances

2020
2013 2014 2015 2016 2017 2018 2019
Budget
Commitment basis (7,991.5) (7,216.7) (6,549.5) (17,446.9) (10,488.1) (10,560.2) (15,624.8) (17,437.7)
Road arrears (205.1) (231.7) (322.3) 0.0 0.0 0.0 0.0 0.0
Non-road arrears (1,965.8) (3,848.8) (2,087.2) 2,715.3 (1,758.1) (858.5) (730.0) (1,443.2)
Unpaid commitments 0.0 0.0 0.0 4,292.3 0.0 0.0 0.0 0.0
Outstanding payments 0.0 0.0 0.0 743.3 (510.8) 0.0 0.0 0.0
Clearance: outst cmtms 0.0 0.0 0.0 (2,320.3) (1,247.2) (858.5) (730.0) (1,443.2)
Tax Refunds (182) (157) (627) 0 0 0 0 0
Cash basis (10,344.0) (11,454.0) (9,586.1) (14,731.6) (12,246.1) (11,418.7) (16,354.8) (18,880.9)
Discrepancy/divestiture 889.3 (96.6) 825.7 1,586.6 1.4 (254.1) 0.0 0.0
Cash (incl. disrp/divstx) (9,454.6) (11,550.6) (8,760.3) (13,144.9) (12,244.7) (11,672.7) (16,354.8) (18,880.9)
Source: Fiscal Tables and Budgets

Tables 4 repeats the “accrual” part of the fiscal tables in real (percent of GDP) values. It
also (a) shows the offsets but (b) excludes exceptional bailout costs in Appendix Memoranda.

Table 4: Fiscal balances—cash and commitment basis

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Deficit and Fiscal Balances [% of GDP]
2020
2013 2014 2015 2016 2017 2018 2019
Budget
Commitment basis (6.5) (4.6) (3.6) (8.1) (4.1) (3.5) (4.5) (4.4)
Road arrears (0.2) (0.1) (0.2) 0.0 0.0 0.0 0.0 0.0
Non-road arrears (1.6) (2.5) (1.2) 1.3 (0.7) (0.3) (0.2) (0.4)
Other Financing 0.0 0.0 0.0 2.0 0.0 0.0 0.0 0.0
clawback from TOR 0.0 0.0 0.0 0.3 (0.2) 0.0 0.0 0.0
Clearance: outst cmtms 0.0 0.0 0.0 (1.1) (0.5) (0.3) (0.2) (0.4)
Tax Refunds (0.1) (0.1) (0.3) 0.0 0.0 0.0 0.0 0.0
Cash basis (8.4) (7.4) (5.3) (6.8) (4.8) (3.8) (4.7) (4.7)
Discrepancy/divestiture 0.7 (0.1) 0.5 0.7 0.0 (0.1) 0.0 0.0
Cash (incl. disrp/divstx) (7.6) (7.4) (4.9) (6.1) (4.8) (3.9) (4.7) (4.7)
Source: Fiscal Tables and Budgets
Tables 3 and 4 show the effect of the “setoffs” leading to an accelerated but incredible
pace of fiscal consolidation—on paper in the same fiscal year (FY2016). It complements the
use of low levels of arrears for the same purpose.

 Set-off items: two commitment items—Ghc4,292.3 million (unpaid) plus Ghc 743.3
million (outstanding) add up to the Ghc5035.6 million in Table 1.
 “Stand-alone” items: they are without precedent or antecedent and, as positive (not
negative) arrears that neutralize the Ghc5035.6 million.
 Low levels of arrears: the provision of Ghc730 million for arrears in 2019 is low, given
recent disclosures of pension, contract, and wage arrears and 2019 Mid-Year Review
misclassification of energy arrears as amortization (not corrected in 2020 Budget).
 Low fiscal balance: the setoffs reduce, not increase, the balance on commitment (Ghc
14,731.6 million or 8.1 percent); cash balance, without discrepancy, (Ghc13,144 million
or 6.8 percent); overall balance (Ghc13,144.0 or 6.1 percent).

MOF now concedes (FY2019 Budget) that the fiscal balances for FY2016 is lower than
the 9.3 percent that the current administration claims to have inherited (see next bullet).

Fiscal balances—with offsets but excluding exceptional bailout costs

Table 3 and 4 exclude significant bailout costs: 2018 (i.e., Ghc9,801.3 million in 2018)
and (Ghc1,725 million in 2019) from “above-the-line” fiscal balances. As Tables 5 shows, these
costs appear as “below-the-line” Appendix memoranda items.

Table 5: Fiscal balances—including bailout costs

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Deficit and Fiscal Balances (including Exceptional costs)
2020
2013 2014 2015 2016 2017 2018 2019
Budget
Cash (incl. disrp/divstx) (9,454.6) (11,550.6) (8,760.3) (13,144.9) (12,244.7) (11,672.7) (16,354.8) (18,880.9)
Memo items (nominal values)
Bail-out (B-O) cost 0.0 0.0 0.0 0.0 0.0 (9,801.3) (1,725.0) 0.0
Fisc Bal (incl B-0) (9,454.6) (11,550.6) (8,760.3) (13,144.9) (12,244.7) (21,474.0) (18,079.8) (18,880.9)
Memo (Percent of GDP)
Cash (incl. disrp/divstx) (7.6) (7.4) (4.9) (6.1) (4.8) (3.9) (4.7) (4.7)
Bail-out (B-O) cost 0.0 0.0 0.0 0.0 0.0 (3.3) (0.5) 0.0
Fisc Bal (incl B-0) (7.6) (7.4) (4.9) (6.1) (4.8) (7.1) (5.2) (4.7)
Nominal GDP:
Nominal GDP 123,650.0 155,432.5 180,399.0 215,077.0 256,671.4 300,596.3 345,946.3 398,048.2
Non-oil GDP 116,847.2 146,431.7 175,707.1 214,049.9 248,225.5 289,988.2 382,205.3 382,205.3
Source: Fiscal Tables and Budgets

The main effect of including the exceptional banking sector bailout costs is to increase
the projected fiscal deficit from 4.7 percent to 5.2 percent in 2019.

 “Below-the-line” items: these appear as Appendices in the Budgets and fiscal tables from
2018 to date (page 211, 2020 Budget).
 Unconventional footnotes: past governments have shown all “exceptional” revenues,
payments, and arrears “above-the-line” as cash items or arrears, not as footnotes.
 Total bailout costs: the bailout amount in the Appendix Memoranda is Ghc11,521
million only—not Ghc15 billion or Ghc30 billion as read in the Budget Speech.
 Zero (0) provision for bailout costs in 2020: this is not realistic, given the background
more restructuring in banking and insurance as well as likely actual contingent liabilities
that will crystalize in 2020.

The controversy is needless since the government treats the banking sector bailout costs
in footnotes but conveniently includes ESLA costs in the framework because of the gratuitous
backing of the “nuisance” ESLA receipts.

Origin of Ghc5.03 billion arrears

The Ghc5.03 billion is part of about Gh7 billion “pipeline” of contracts compiled by the
past administration for ministries, departments, and agencies (MDAs) in 2016 as part of the 2017
Budget preparation.

 Pipeline of MDA contracts: the total (revised) contract sum in MDAs was about Ghc11
billion and work-in-progress (wider commitment) about Ghc7 billion.
 Arrears in budgets: the narrow arrears (i.e., 3-to-6 months of unpaid bills) was about
Ghc2 billion—the amount that appears as “net arrears” in the tables.
 Shift to accrual accounting: MOF to enter the Ghc5.03 billion, the difference between
the wide and narrow basis, in the new GIFMIS Accounts Payable module to shift to
“accrual” accounting and adoption of IPSAS.

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 Ghc5 billion arrears: the 2017 Budget fortuitously used the Gh7 billion as undisclosed
“election year” expenditure item to score political points without the GIFMIS entries.

The net effect is that only about Ghc2 billion, curiously stated as positive in Table 3, was
carried forward to 2017—leading to a false impression of accelerated consolidation.

Revision of FY2016 fiscal items and balances

Table 6 reverses the “offsets” of Ghc5,035 million and adds the exceptional bank bailout
costs to the expenditure items before calculating the budget deficit and fiscal balances.

Table 6: Fiscal balances excluding offsets and including bailout costs

Fiscal Balances [no Ghc5 billion set-off)

2013 2014 2015 2016 2017 2018 2019 2020 (B)

Revenue 19,471.6 24,745.5 32,040.4 33,678.2 41,497.9 47,636.7 54,565.0 67,071.2

Expenditure 27,463.0 31,962.2 38,589.9 46,089.5 51,985.9 58,197.0 70,189.8 84,508.9
Budget Bal/Bal (Cmtmt) (7,991.5) (7,216.7) (6,549.5) (12,411.3) (10,488.1) (10,560.2) (15,624.8) (17,437.7)
Fiscal Bal (incl. Net Arrears) (10,344.0) (11,454.0) (9,586.1) (14,731.6) (12,246.1) (11,418.7) (16,354.8) (18,880.9)
Fisc Bal (incl. Dscr&w/o B-Out) (9,454.6) (11,550.6) (8,760.3) (13,144.9) (12,244.7) (11,672.7) (16,354.8) (18,880.9)
Bailout cost 0.0 0.0 0.0 0.0 0.0 (9,801.3) (1,725.0) 0.0
FB (Cash + Bailout) (9,454.6) (11,550.6) (8,760.3) (13,144.9) (12,244.7) (21,474.0) (18,079.8) (18,880.9)
Source: Fiscal Tables and Budgets

Table 7 shows the data in Table 5 in percent of GDP terms. It shows a reduction in the
reported fiscal deficits that the current administration uses to berate the predecessor government.

Table 7: Revised fiscal balances (percent of GDP)

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Fiscal Balances [no Ghc5 billion set-off)
2013 2014 2015 2016 2017 2018 2019 2020 (B)
Revenue 15.7 15.9 17.8 15.7 16.2 15.8 15.8 16.9
Expenditure 22.2 20.6 21.4 21.4 20.3 19.4 20.3 21.2
Budget Bal/Bal (Cmtmt) (6.5) (4.6) (3.6) (5.8) (4.1) (3.5) (4.5) (4.4)
Fiscal Bal (incl. Net Arrears) (8.4) (7.4) (5.3) (6.8) (4.8) (3.8) (4.7) (4.7)
Fisc Bal (incl. Dscr&w/o B-Out) (7.6) (7.4) (4.9) (6.1) (4.8) (3.9) (4.7) (4.7)
Bailout cost 0.0 0.0 0.0 0.0 0.0 (3.3) (0.5) 0.0
FB (Cash + Bailout) (7.6) (7.4) (4.9) (6.1) (4.8) (7.1) (5.2) (4.7)
Source: Fiscal Tables and Budgets

Figure 3 below repeats Figure 2 (before adjustments) while Figure 4 is the new image
(after the adjustments) for the “set-off” and inclusion of bail out costs.

Figure 3: Graph of fiscal balances

Source: Fiscal Tables and Budgets

Figure 4: Post-adjustment graph of fiscal balances

Revised fiscal balances Revised fiscal balances

0.0 0.0
2013 2014 2015 2016 2017 2018 2019 2020 2013 2014 2015 2016 2017 2018 2019 2020 (B)
(5,000.0) (2.0)
Nominal values

(B)
% of GDP

(10,000.0) (4.0)
(15,000.0) (6.0)
(20,000.0) (8.0)

(25,000.0) (10.0)
Axis Title Axis Title

Budget Bal/Bal (Cmtmt) Fiscal Bal (incl. Net Arrears) Budget Bal/Bal (Cmtmt) Fiscal Bal (incl. Net Arrears)
Fisc Bal (incl. Dscr&w/o B-Out) FB (Cash + Bailout) Fisc Bal (incl. Dscr&w/o B-Out) FB (Cash + Bailout)

Source: Fiscal Tables and Budgets

Basically, Figure 3 shows the fiscal performance under the IMF Enhanced Credit Facility
(ECF) Program (FY2014 to FY2019) under the current and immediate past administrations.

 Performance in FY2016: the sharp increase in budget deficit in 2016 in Figure 3 stems
the declining trend since 2013 and under the Program before a sharp deterioration in
2016—increased budget deficit and declining fiscal balances; and

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 Steep reversal going into FY 2017: which starts in the same 2016 and then portrays
exceptional fiscal consolidation from FY2017.

While it is difficult to vouch that all anomalies have been identified for correction, Figure
4 shows a smoother path until the banking sector bailout cost—which eclipses the single-spine
(wage overrun) impact from 2013 to 2015.

Conclusion—the way forward

The projected deficit for FY2019 is above 5 percent and could go up with the clearance
of more arrears before the year ends. While it may be a developing economy, Ghana’s fiscal and
accounting rules have been clear and consistent—with preparations for improvement under the
GIFMIS. We should not set the clock backwards.

 The tolerance of “offsets” is an aberration that distorts and does harm to our fiscal rules.
 As the Minority in Parliament notes, after giving the impression of paying Ghc5.03
billion arrears to achieve a record fiscal consolidation, MOF seems busy with off-budget
payments outside the GIFMIS system to fill the gap.
 There is no justification for excluding the exceptional costs since the fiscal framework,
rules, and accounting principles are clear and consistent.

The past “all-inclusive” approach—including items such divestiture receipts and

payments, debt forgiveness (HIPC/MDRI receipts), subsidies (“dumsor” payments), and wage
overruns (i.e., single-spine current payments and arrears)—is the best way forward. This is
consistent with the shift to semi-accrual accounting under the ongoing 2010 PFM reforms.

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