NPLs may rise over capping of statutory funds

The Minority Spokesperson on Finance, Ato Forson, says district assemblies may struggle to meet their obligations to contractors, a situation that may intend make it difficult for contractors to service their existing loans with financial institutions.

“If care is not taken we will see a new scenario where the banks are seeing a lot of government contractors not getting paid and therefore they are not servicing their debt. There is a likelihood that we are going to see a lot of Non-Performing Loans (NPLs) in the banking sector,” he said.

Government, in its 2017 budget and economic policy approved by Parliament, seeks to cap all statutory funds at 25%.

Parliament last week, put on hold the Earmarked Funds Capping and Realignment Bill, 2017 which is aimed at freeing up public resources by placing a cap on the specified Earmarked Funds to ensure that tax revenue burdened by those Funds does not exceed twenty-five percent (25%) of total tax revenue.

This means that 7.5% of all total revenue of the country that goes to the District Assemblies Common Fund (DACF) will be slashed down to 5% if this is implemented.

The former deputy Finance Minister, who is also the Member of Parliament for Ajumako-Enyan Essiam constituency of the Central Region said government should have consulted widely before reaching its decision.

“It was prudent for government to have engaged them [the assemblies] and agreed on the moratorium,” he told B&FT in an interview.

The Central Bank of Ghana (BoG) data indicate that Non-Performing Loans (NPLs), which have remained elevated since December 2015, dropped marginally to 17.4 percent in December 2016.

Despite concerns from the minority, government maintains that the bill has clauses that gives the Finance Minister powers to make allocation from capped Internally Generated Funds (IGFs) to relevant Ministries, Departments and Agencies (MDAs) based on their respective weights within the capped total IGF retention for each fiscal year.

The Earmarked Funds Capping and Realignment Bill, 2017 is expected to be approved this week before Parliament rises.