Business News of 2014-05-14

Local assemblies to seek own funds for devt

The government is to support local authorities, starting from selected metropolitan and municipal assemblies, to implement projects with loans which the assemblies will pay back themselves.

As part of the government’s debt financing programmes, the Ministry of Finance will use a recovery scheme to support selected local authorities to implement commercial viable projects using property tax, the Minister of Finance, Mr Seth Terkper, has announced.

The recovery schemes will enable implementing agencies to open escrow accounts or other forms of lending to fund projects, which could repay themselves.

This way, the implementing agencies, including local authorities, can execute projects on their own balance sheets, without resorting to the central government for loans, a move meant to help improve the country’s debt sustainability.

For instance, over the past two decades, the government provided a total of US$423 million in loans and grants to fund sanitation projects in Accra, Kumasi, Tema and Tamale alone.

Mr Terkper disclosed this at a National Consultative Conference on Internally Generated Funds (IGFs) by local authorities in Accra on May 6, said his ministry would start off with sanitation projects in Sekondi-Takoradi and a project at Asafo Market in the Kumasi Metropolitan Assembly.

The conference was aimed at examining key policies, legal and institutional frameworks and administrative capacities of metropolitan, municipal and district assemblies (MMDAs) with the aim of developing guidelines which will assist the local authorities to identify and collect more IGFs.

Debt stock

The recovery schemes have become necessary because of the country’s rising debt portfolio. The public debt stock (including government guaranteed debt) increased by 22.7 per cent from US$19.15 billion at the end of 2012 to an estimated US$23.49 billion at the end of September 2013.

This represents about 52 per cent of gross domestic product (GDP) in September 2013, from about 49.3 per cent of GDP as at the end of 2012.

IGF statistics

The assemblies are said to be collecting low revenue internally, at about 20 per cent of revenues they receive. Transfers from government and donor funded projects constitute the largest chunk of funds the assemblies use.

For instance, in 2012, a total of 216 MMDAs mobilised GH¢138.1 million. However, the extent of collection varies, as more endowed assemblies collected more.

The top 10 MMDAs, which are well-endowed with natural resources and capacity, mobilised GH¢65.8 million in 2012, representing 48 per cent of total IGFs of the assemblies nation-wide. However, the least 10 collectors, considered less-endowed, could only generate GH¢453,967 in 2012, representing 0.3 per cent of IGFs, down from the GH¢572,699 it collected the previous year.

This gives IGF generation average between GH¢6 and GH¢47 per capita collection across MMDAs.

Mr Terkper said such escrowed projects, which would use specific IGFs as their guarantee and viability analysis, would be a precursor to the proposed Municipal Bonds to be listed on the Ghana Stock Exchange.

“The goal is to prove to the market that when assemblies borrow, they are capable of repaying the facility. We intend to launch the municipal bonds, but we need to maintain some discipline,” Mr Terkper said.

According to the 2014 budget, the government’s debt policy would include restructuring the tenor as well as implementing recovery schemes (e.g. escrows and on-lending) for commercially viable projects.

An Economist, Dr Nii Moi Thompson, who represented the President John Dramani Mahama at the conference, stressed the importance and the critical role of local assemblies and charged them to devise innovative strategies to scale up revenue collection.

In relation to poverty alleviation and addressing inequalities, Dr Thompson said there was a rising concensus that local authorities should play frontline roles in the post-MDG development agenda.

On country and national levels, Cabinet has approved the Public Private Partnership (PPP) model and the local economic development policy (LED) as critical drivers for generating necessary funding for local developments.

He, therefore, called on local government and assemblies to position themselves well to take advantage of the initiatives.

“Assemblies must have their own money which they control and not have to wait for transfers from central government or development partners,” the president said.

A lecturer, politician and expert on local government, Professor Kwamina Ahwoi, who chaired the programme, had a number of suggestions, including the need to cede the collection of some revenues at the national level to the assemblies.

“Very often, the juicy and easy to collect are done at the national, while the not juicy and difficult ones go to the assemblies,” Prof. Ahwoi explained, citing the example of the talk-time tax which could have been done at the local level.

Prof. Ahwoi also called on the central government to empower assemblies to pay the emoluments of their staff as an incentive to spur performance at the local level. This is because their salaries will be tied to their performance on revenue generation