Revision of Ghana Petroleum Funds investments underway

After a decade of earning paltry interest yields on the investment of its petroleum funds, Ghana is finally taking steps to improve their investment performance. Throughout the past decade, overall interest yields on Ghana Petroleum Fund investments have not reached even two percent per annum. This is because the Petroleum Revenue Management Act 2011 (Act 815) demands that all such investments must be made offshore, specifically in United States treasury instruments which are regarded as the safest investment assets in the world. However monetary easing, which has been the predominant US monetary policy in recent years, has meant low treasury instrument yields and Ghana’s investments are consequently suffering.

Indeed this has created an incongruous situation whereby government issues Eurobonds every year at over seven percent per annum while investing its own monies at barely two percent per annum.

The Public Interest and Accountability Committee is leading the lobby for reform of the law to enable part of the funds be invested in higher yielding, albeit riskier instruments. Such instruments could include top grade corporate bonds and sovereign bonds of emerging markets with good economic fundamentals.

Says its latest annual report released earlier this week: The Committee reiterates its recommendations to the Ministry of Finance to diversify its qualifying instruments in investing the GPFs to maximize returns.

Already meetings towards this have been held involving the Investment Advisory Committee which makes the actual investment decisions and the President himself.

Meanwhile the process for setting a standard benchmark to measure performance of Ghana Petroleum Funds (GPFs) is ongoing with completion expected soon.

Already, a Norwegian international Consulting Agency, NORAD, has been engaged to assist the Investment Advisory Committee (IAC) to set the benchmark portfolio for the GPFs.

This falls in line with Section 30 (1c) of the Petroleum Revenue Management Act, 2011 (Act 815), which mandates the Committee that as part of investment guidelines, it should develop benchmark portfolio for the Fund taking into consideration the investment guidelines used by the Bank of Ghana (BoG) – being the Funds’ Manager.

In fact, Act 815, requires that the IAC measured periodically the performance of Ghana Petroleum Funds against the benchmark that the Committee had developed.

However, because the Committee failed to set the benchmark for performance measurement, the Auditor General in its audit assessment was unable to obtain evidence in relation to how the performance of the Fund was measured by the IAC.

“The IAC may not identify sub-optimal performance for appropriate remedial decision, if periodic measurement of the Funds’ performance does not take place as prescribed by Act815”, a recent Auditor General’s report on management of Petroleum Funds indicates, which has since been submitted to parliament.

Subsequently, the Auditor General Mr. Daniel Domelovo is recommending that the IAC should determine the benchmark for measuring the Funds’ performance and conduct periodic monitoring of the performance in line with Act 815.

Currently, the IAC is undertaking performance measurement of the Ghana Petroleum Funds focused primarily on performance, attribution and compliance as required by the BoG guidelines, the report added.