No investment policy for sinking fund

Since it was established in 2015, Ghana’s sinking fund has had no investment policy that would direct how funds accrued into it would be invested.

This is contrary to Section 39 (3) of the Public Financial Management Act 2016 (PFMA), Act 921, which demands that the Minister for Finance issues an Investment Policy Statement for the fund.

The investment policy would give a clear direction to the Controller and Accountant-General’s Department (CAGD) on how to invest monies of the Sinking Fund in order to accumulate sufficient interest for the redemption of loans using the Sinking Fund, as mandated by Section 39 (2) of the PFMA.

According to the Act, the Sinking Fund is a special fund created for the redemption of a loan or a pool of loans, purchase of loans or any other related purpose by means of a periodic contribution into a fund which is calculated in a manner that when accumulated at compound interest over the life of the loan, the sum available in the fund shall be sufficient to redeem the loan.

The Auditor General’s report on the public accounts of the central government for the financial year ending December 31, 2018 observed that, unlike in 2017, where CAGD invested and earned interest of US$2,201,333.34 on its idle funds put into interest earning assets, in 2018 the CAGD failed to do same.

The AG’s report again observed that though a total of US$10,233,304 was idle during the year, CAGD did not invest this fund denying government the opportunity of making some additional earnings.

“This inaction by CAGD could deny the Fund of sufficient money to redeem loans that will be due for redemption in the near future.”

However, management of CAGD has explained that, the figure quoted in the audit observations was not an amount standing idle throughout the year. It was the balance on the Sinking Fund account as at December 31, 2018 which was earmarked for the redemption of debt in the following month.

In line with Section 23(4) of the PRMA, the Ghana Stabilization Fund (GSF) was capped at US$300 million in the 2018 Budget. A total of US$283.97 million was withdrawn from the GSF in 2018.

The 2018 Reconciliation Report on the Petroleum Holding Funds indicates that the amount, which was in excess of the cap placed on the GSF in the 2018 Budget, was transferred into the Sinking Fund, in accordance with Section 23(3) of the PRMA.

In the 2019 mid-year budget review, a total of GHc 748,928,252 is expected to be withdrawn into the sinking fund from the GSF.

Source of money for the Sinking Fund

Sources of money for the Sinking Fund are:

(a) periodic contributions of specified amounts determined by the Minister as part of the annual budget;

(b) repayment inflows of money on-lent by the Ministry to covered entities, state- owned enterprises and public corporations;

(c) moneys that accrue to the Fund from investment of moneys of the Fund;

(d) moneys borrowed or raised from capital markets for the purpose of redemption of existing debts;

The lack of formal investment guidelines for the monies transferred into the Sinking Fund therefore could constrain the potential for growing it through investments made by those monies. Although the CAGD’s explanation as to why a balance appears to be idly un-invested, is valid it still does not provide an Investment Policy as required by law.

(e) moneys approved by Parliament for debt repayment under subsection (4) of section 23 of the Petroleum Revenue Management Act 2011 (Act 815); and

(f) any other moneys that the Minister, with the approval of Parliament determines to be paid into the Fund.