Former Minister of Finance, Seth Terkper, has said an explanation proffered by Governor of the Central Bank, Dr Ernest Addison, for government’s constant exclusion of exceptional costs in its fiscal deficit calculation is untenable.
During a Q&A at the just-ended 97th Monetary Policy Committee (MPC) press briefing on Monday, November 23, Dr Addison said in answer to a question on why the government has since 2017 excluded exceptional costs in its fiscal deficit computation despite red flags raised about the computation method, that it was to monitor the fiscal deficit performance of the budget.
“In 2018, when we were under an IMF programme, in order to be able to monitor the budget performance, it was important that we computed the deficit to exclude the energy and financial sectors, as those were legacy problems that we had inherited.
“Now that we have finished the programme, given the developments in 2020 in the wake of the pandemic, this is the time to relook at that area—the broader fiscal deficit which includes the energy and the financial sector issues.
“Over the medium term, we need to redefine the broader fiscal deficit, which gives you a better sense of the burden on the budget,” the Governor explained.
However, Mr Terkper disagrees with this explanation and accuses the government of excluding exceptional costs in its bid to give a false sense of impressive fiscal deficit figures.
Mr Terkper said the Governor’s excuse is not accurate because the IMF programme, which began in 2014 under the John Dramani Mahama administration, mandated that exceptional costs be computed as part of the nation’s fiscal deficit.
“The excuse that exceptional costs had to be separated from the other costs incurred by the government because of the IMF programme is not tenable because while under the IMF programme, the most exceptional cost for the NDC [John Mahama administration] aside the banks and energy arrears was another legacy (emphasis) Single Spine wage overrun and the IMF insisted that we quantify the costs and spread it over three years and add it to our fiscal framework and compute it as part of our fiscal deficit,” he stated.
Mr Terkper was speaking to business journalists last week on a myriad of economic issues including what he describes as unsustainable debt figures under the current administration.
The former Finance Minister under the John Mahama administration also stated that the Nana Addo Dankwa Akufo-Addo-led administration has been notoriously sticking to a non-conventional method of computing the national fiscal deficit.
According to Mr Terkper, Ghana’s fiscal framework adopted since the 1980s makes room for the computation of both exceptional costs and exceptional revenue.
He said exceptional revenue from the Highly Indebted Poor Country (HIPC) programme which Ghana entered in the 2000s was added to the government's total revenue and also included in the budget.
He noted that the current administration, however, includes exceptional revenue, including the legacy ESLA receipts, to its total revenue and puts it in the budget, but excludes exceptional ESLA-based costs.
“Exceptional revenue like HIPC and others were part of the budget, it has always been part of the budget. Under former President Rawlings, divestiture receipts coming in was recorded as part of revenue, so the fiscal framework takes care of exceptional costs and revenue.
“But this government includes exceptional revenues from ESLA to its total revenue and puts it in the budget, but treats exceptional costs paid from ESLA differently,” he said.
The former Finance Minister further stated that the much talked about exceptional costs from the financial and energy sectors were determined by the NDC government in 2016 through an audit assessment conducted by the central bank.
“ESLA was not an obligation under the IMF programme, it was an initiative by Mr Mahama and the IMF was informed about it, and ESLA was simply to cater for the financial and energy sector costs because crude oil prices then had plunged, so ESLA was a way to clear the debts in the two sectors,” Mr Terkper intimated.
“We did the first restructuring of the sectors and the IMF was aware of it, we restructured VRA's portion of the banking costs and used part of revenues from ESLA to pay for it, we put aside Ghs 250 million for banks as cash injection and also did restructuring worth Ghs 2.2 billion with 11-13 banks and the IMF was aware of all of these things,” he emphasised.
Mr Terkper said it was wrong for the current administration to treat exceptional costs as footnotes in its fiscal deficit computation.