Govt Cooks Economic Figures To Deceive Ghanaians-Minority

Govt Cooks Economic Figures To Deceive Ghanaians-Minority

The minority caucus in parliament has called on the economic management team of President Akufo Addo led government to seize unpopular economic tactics of massaging figures to paint the ailing economy look good in the eyes of the masses.

According to the Minority, the government has badly run the economic such that, business and industries have collapsed, whilst the nation’s debts kept on rising without any tangible projects to show.
The Finance Minister, Ken Ofori-Atta, is expected to present the 2020 Budget Statement on Wednesday 13, 2019.

But the Minority at a pre-budget press briefing on Monday, November 11, 2019, indicted the government with poor management of the economy.

Minority Leader, Haruna Iddrissu said, the government had gained notoriety of deceiving Ghanaians on the economy.

They accused the Finance Minister of deliberately massaging economic figures to hide the true state of Ghana’s economy.

The Minority cautioned Ken Ofori-Atta to avoid putting out similar figures as he presents the 2020 budget come Wednesday.

“We know that the Finance Minister is preparing to come to Parliament with some mashed potatoes tomorrow…mashed potatoes of massaged numbers.

“There are many happenings in the country including numbers that are being hidden, from dollars, from the IMF, from the Ghanaian public which would allow him to have cooked numbers in order to justify what deficit he wants to sell to the Ghanaian people, ” the Minority said.

Full Statement

STATEMENT READ BY HON CASSIEL ATO FORSON AT A PRESS CONFERENCE ON THE EXPECTATIONS OF THE MINORITY CAUCUS IN THE 2020 BUDGET AT PARLIAMENT HOUSE ON MONDAY, 11TH NOVEMBER 2019.

UNVEILING SOME DECEPTIONS AND SOME FISCAL MISREPORTING

1. Good morning Ladies and Gentlemen of the media,

2. On behalf of the leadership and membership of the Minority Caucus in Parliament and on my own behalf, permit me to welcome and thank you sincerely for making time to join us this morning to undertake this important exercise.

3. This Wednesday, our Minister for Finance, Hon. Ken Ofori Atta, on behalf of His Excellency, Nana Addo Dankwa Akufo – Addo, will present the 2020 Budget and Economic Policy of the Government to Parliament. We note that this will be the last budget of the Akufo-Addo government since we are confident of an NDC victory at the December 7th, 2020 elections. As part of our oversight mandate and moral duty to carry out the needed scrutiny of government policy and performance, the Minority would like to share with you a number of fiscal misreporting that have occurred in recent times, under the leadership of His Excellency, the President, which is damaging Ghana’s reputation in economic and fiscal governance. These have been brought to the attention of the Hon. Minister for Finance through a letter and he has been advised to correct them in the 2020 Budget and Economic Policy of Government.

4. Against this background, we deem it necessary to make known our position on these macro-fiscal developments and our expectation that they will be rectified in the in the 2020 Budget and Economic Policy.

5. But before that, we would like to point out some misleading claims made by President Akufo Addo recently and bring this to the attention of Ghanaians and correct same.

6. President Nana Addo Dankwa Akufo-Addo, in his speech at the 8th Edition of the Ghana Economic Forum on Wednesday, 30th October 2019, said, and I quote:

“As you all know, the macroeconomic situation that my government inherited in 2017 was a dire one. GDP growth of 3.6 percent at the end of 2016 was the lowest in over two decades. The 2016 fiscal deficit was 9.3 percent…….”

7. Ladies and Gentlemen, the official fiscal deficit for 2016 as published by the Ministry of Finance was GHC -13,144,932,415 (https://www.mofep.gov.gh/index.php/fiscal-data/2016). The nominal Gross Domestic Product (GDP) for 2016, before the rebasing, was GHC 168,752,715,082. Therefore, the fiscal deficit was -7.8 % of non-rebased GDP and not 9.3%.

8. The nominal GDP for 2016, after the rebasing, was GHC 215,077,044,658.61, hence the fiscal deficit for 2016 was -6.1% of the rebased GDP, and not 9.3%. Page eleven (11) of the Mid-year Budget Statement recently reports the 2016 fiscal deficit to be 6.5 percent of rebased GDP.

Therefore, the claim of a deficit of 9.3% of GDP by the President cannot be TRUE.

The Minority in Parliament would like to caution the Authorities not to peddle falsehood with the 2016 fiscal deficit.

9. Mr. President, it is important to note that Ghana had no oil two decades ago. It is therefore disingenuous on your part to compare oranges with apples. It would have been more appropriate to compare non-oil GDP growth over the period.

10. The overall GDP growth for 2016 was 3.4 percent (Figure 1, page 7 of 2019 mid-year Budget Statement) while the non-oil GDP growth was 4.6 percent. Overall GDP Growth however recovered to 8.2 percent, while non-oil growth remained at 4.6 percent. Hence, the 2017 overall growth rate was driven largely by oil sector. Clearly, the President did nothing to improve the real sector but was fortunate to inherit a vibrant oil sector.

Figure 1: GDP growth from 2016 to 2019 H1.

Source: GSS, 2019

11. From Table 1 and Figure 1 above, oil GDP growth increased from 3.4% in 2016 to 8.2% in 2017, while non-oil GDP growth remained at 4.6% within the period. The 8.2 % growth in 2017 was driven by growth in the oil sector as a result of the twin investments by the Mahama administration in the Tweneboa, Enyenno, Ntomme (TEN) and Sankofa oil fields which the Akufo-Addo administration had no role in. In fact, growth in the economy since 2017 has been oil-based and the Akufo-Addo Government has done Zero in the oil sector.

12. After almost three (3) years of its four (4) year mandate, Nana Akufo-Addo’s Government is still in the business of sloganeering and obsessed with churning out macroeconomic indicators that have little or no bearing on the hardships confronting Ghanaians.

13. The good people of Ghana will agree with us that in the past three years, the Ghanaian economy has been largely characterized by:
 deteriorating standard of living of the average Ghanaian.
 increasing cost of utilities, particularly, energy, water and petrol.
 Increasing cost of transportation.
 collapse of businesses accompanied by job losses.
 compromised private sector performance, particularly in creating and sustaining jobs.
 tax regimes that undermine productivity and economic expansion.
 high rate of debt accumulation due to the government’s insatiable appetite for borrowing.
 unprecedented failure of expenditure laden government flagship policies and programmes.
 public financial management maneuverings which have often delivered cosmetic deficit numbers.

14. A few specific examples of mismanagement and hopelessness confronting Ghanaians will suffice:

i. Despite the promise by the President to make Accra the cleanest city in Africa, water supply, sewerage, waste management and remedial activities, as a composite, has been experiencing negative growth rates, averaging -6%, in the last five quarters (Ghana Statistical Service, Quarterly GDP Bulletin). It is not surprising, therefore, that every corner of the city has become a garbage dump site with the city getting flooded after less than thirty minutes of rain.

ii. Growth in construction averaged -8.5% during the first two quarters of 2019. This contraction is attributable primarily to the suspension of contracts by the Government, and the Government’s failure to honour the payment for work done by contractors. This has led to the deplorable state of roads in Ghana.

iii. Fishing has also seen negative growth rates, averaging about -6%, in the last four quarters which has resulted in the worsening of the livelihood in our fishing communities.

Now on the issue of fiscal misreporting and cosmetic accounting.

A. FACTORING ARRANGEMENT AND NON-PROCESSING OF EXPENDITURE THROUGH GIFMIS

15. In 2018, the government used a factoring arrangement to pay arrears and current claims owed to contractors. With this arrangement, government liabilities to contractors were discounted between 10 and 14 percent and the discounted values paid-for using government borrowings from Fidelity Bank.

16. Given this unprecedented “off-budget treatment”, the contractors were compelled to discount fiscal liabilities at a cost to themselves, and effectively subsidized Government operations.

17. Fidelity Bank paid the total amount of the discounted liabilities, (GHC1 billion), in return for a Treasury Note. This increased the public debt by the Face Value of the Treasury Note (GHC1 billion) held by the Fidelity Bank.

18. Using this arrangement to offset 2017 payments, the amount was not captured as expenditure in the 2017 and 2018 fiscal framework, thus reducing the size of the fiscal deficit by GHC1 billion – a false impression of the size of the fiscal deficit between 2017 and 2018 Fiscal Years. This arrangement is alien to Ghana’s fiscal regime and standards.

19. It is most worrying that the transaction did not go through the Ghana Integrated Financial Management Information System (GIFMIS) as required under the Public Financial Management (PFM) Act.

20. Furthermore, Senior Government Officials in the Ministries of Finance and Roads and Highways have informed the general public that a similar arrangement is in the works to pay GHC2 billion government arrears in 2019, of which GHC1.6 billion is for arrears in the Roads Sector.

21. The Minority would like to advise the Minister for Finance to desist from these practices that by-pass Parliament and distort and exaggerate fiscal performance, With ‘ECONOMICS HIDING THE NUMBERS’

B. TREATMENT OF ENERGY SECTOR PAYMENT AND ARREARS AS AMORTIZATION

22. In the Mid-year Review of the 2019 Budget Statement, the Government took a compromising decision to treat the crystallized energy sector arrears to the Independent Power Producers (IPPs), for which it sought payment through borrowing and an increase in tax in the Energy Sector Levy Act (ESLA), as an amortization item.

23. The amortization line in government fiscal operations increased by the size of the amount owed to the energy sector IPPs, estimated at GHC5.4 billion. This treatment is not consistent with the Government Finance and Statistics (GFS) Manual 2014 of the International Monetary Fund (IMF).

24. The technical and operational definition of amortization in the Glossary of the GFS Manual is as follows:

25. The Amortized Value of a loan reflects the gradual elimination of the liability by regular payments over a specified period of time. An activity is classified as amortization if it is:

a. reimbursement of the principal of a debt;
b. distinguished from interest, which is a charge for the use of borrowed money; and
c. recorded in the balance of payment at the time it is due.

26. From the definition and classification above, the treatment of the crystallized payment to the IPPs as an amortization item is technically and operationally unconventional.

27. The payment arose as a result of the government’s decision to subsidize electricity tariffs in 2018. Therefore, the payment should be classified as a subsidy (crystalized arrears) and not amortization. As the GFS and Fiscal Rules require, amortization must occur when the loan is secured, it increases public debt, and its servicing begins.

28. Also, we were informed by the Minister that the amount would be on-lent to the energy sector State-owned Enterprises (SOEs). It begs the question why a request was made for an increase in tax (ESLA) to repay the loan as Government liability.

29. For now, we urge The Minister for Finance to recognize the approvals as government commitment that could be transferred to the SOEs later and not amortization.

30. This is enough evidence to support the Minority’s position that the government’s payment to the IPPs is basically an expenditure (arrears) item that directly affects taxes (ESLA) or revenues and cannot be treated as off-budget and below the line item.

31. This serious breach of fiscal rules continues the off-budget and below the line treatment of arrears and payments to give a lower deficit and false impression of fiscal performance which has been happening since 2017. If not corrected, it will set a wrong precedence for future fiscal reporting. We are compelled by the PFM Act to ensure fiscal transparency at all times.

C. TREATMENT OF FINANCIAL SECTOR BAILOUT COST

32. The Government has continuously declined to treat the cost for the financial sector clean up as an above the line item. In fact, the item is even treated as a footnote and not as an exceptional item. Nonetheless, in the Mid-year Budget Review, the government projected recoveries from the receivership as an above the line revenue item, which, even more, exaggerates the fiscal performance. We find this treatment very inconsistent with the financial reporting rules and we reject it.

D. SECURITIZATION OF MINERAL ROYALTIES

33. The government proposed to raise $200 million to fund the 2019 Budget through the securitization of mineral royalties. The intention of government is to treat it as debt neutral. Our position is that securitizing mineral royalties are a secured guarantee for payments of a loan facility that, initially, creates a liability for the government. Hence, the amount received from the securitization can best be described as appropriation that is already recognized in our budgets as Royalty or Other Receipts. Hence, prior to the Escrowed Receipt of Future Royalties and Loan Repayment (Amortization!!!), the securitization (Security Guarantee) should be classified as public debt.

E. CORRECTION OF END-2016 DEBT STOCK

34. You will recall that the Government used the end-March 2017 exchange rate, instead of end-December 2016 exchange rate, to calculate the Debt Stock for 2016. This resulted in about Ghc2 billion increase in the Debt Stock for 2016, i.e. Ghc122 billion instead of GHc120 billion.

35. Despite the disagreement with the Audited Public Accounts figures between the Controller and Accountant General and the Auditor General, the Minister for Finance has defied the Public Accounts Committee (PAC) and Parliament’s directives to make the appropriate correction in the Fiscal Tables. Needless to state that this is misleading, even to institutions such as the International Monetary Fund (IMF), since it falsifies the 2016 debt stock.

36. It should be noted that the Minister for Finance has not been consistent in applying this significant change in the fiscal rules to the end-2017 and end-2018 Debt Stock!!

F. GETfund BORROWING

37. GETFund used its receivables as collateral to borrow about $1.5 billion from a consortium of banks. Note that GETFund is a budget flow (VAT or, now, so-called, Straight Levy), approved by Parliament through the formula and appropriated as a transfer. Surprisingly, this financial transaction was treated as an off-balance sheet operation, hence did not go through the fiscal.

38. Technically, and as current practice, GETFund is purely a government operation, making it inappropriate to treat such a transaction as an off-balance sheet transaction. Operationally, the recognition of Government commitment to be paid for through borrowing should not reduce the size of the overall deficit. It will inevitably lead to borrowing and add to Public Debt (to be secured and serviced through the revenue from VAT/LEVY).

ECONOMIC IMPLICATIONS OF THE MISREPORTING
39. It is not surprising that the public debt stock which stood at GHS 120.3 billion at the end of December 2016 has risen to GHS 205.5 billion as at the end of July 2019.
The increase of public debt of GHS 85.2 billion within a period of just 31 months is very alarming and worrying.

40. The public debt increased by 45.8 billion between July 2018 (GHS 159.7 billion) and July 2019 (GHS 205.5 billion). This represents 53.76% of the total increase in the public debt between July 2018 and July 2019. This implies that the public debt is increasing at an increasing rate which is very troubling.
41. The public debt has therefore increased by 70.82% between December 2016 and July 2019 (85.2/120.3 December 2016 and July 2019 (85.2/120.3 * 100).
42. Capital expenditure in 2016 was GHS 7.7 billion. It, however, decreased to GHS 6.3 billion and GHS 4.3 billion in 2017 and 2018 respectively. The capital expenditure for the first six months of 2019 was only GHS 2.6 billion.
43. Total capital expenditure from January 2017 to June 2018 was GHS 13.6 billion compared to the increase in the total debt of GHS 85.2 billion. This implies that most of the public debt is spent on consumption rather than investment.

44. Government is increasing expenditure without corresponding sustainable revenue measures. Strangely, Government has resorted to disingenuous, unconventional, and unacceptable ways of hiding these expenditures “below-the-line”.

45. The Minority would like to caution the Minister for Finance to desist from such unconventional financial manipulation. He is advised to correct all the Fiscal Misreporting in the 2020 Budget and Economic Policy of Government. Failure to heed the caution and advice, the Minority will use all constitutional provisions available to resist the act.

OTHER ISSUES

1. TAX POLICIES

46. The Finance Committee of Parliament invited the Ghana Revenue Authority to come and explain the causes of revenue underperformance in recent times. It was revealed that one of the main causes was the projected shortfall in customs revenues of up to GH¢2.4 billion in 2019, due to the fall in import values since the announcement of the cuts in import duties at the town hall meeting.

47. Ghanaians will recall that the VEEP, Dr Mahamudu Bawumia, at the Town Hall meeting organized by the Economic Management Team (EMT) on April 3, 2019, said, and I quote:

“to reduce the incidence of smuggling and enhance revenue, the benchmark or delivery values of imports have been reduced by 50 per cent except for vehicles which will be reduced by 30 per cent effective April 4, 2019. This means, for example, if a container was previously assessed for duty at a value of $20,000, it will now be assessed from tomorrow at a value of $10,000. We expect that the higher volumes of at least 50 per cent annually will increase custom revenue”.

48. In less than a year after the implementation of the policy, it is having dire consequences on custom revenue. That is the result of a “spur of the moment” populist policy formulation without a thorough and critical analysis of its outcome. Policy Formulation is not a Propagandist Comic Relief.

49. On October 9, 2016, Dr Mahamudu Bawumia, (then Vice Presidential candidate), while presenting highlights of NPP’s 2016 manifesto at the Trade Fair Centre, said, and I quote:

“unlike the governing National Democratic Congress (NDC) that are collapsing industries and small-scale businesses with high rates of taxes, especially those in the private sector, the next NPP administration will introduce tax incentives that will ensure the growth of industries”. He continued, “the NPP will shift the focus of economic policy away from taxation to production”.

Along these lines, in the NPP’s 2016 manifesto, they promised to reduce corporate income tax from 25% to 20%. This has not been implemented and since this is going to be the last budget, we will urge the His Excellency, the President, through the Minister for Finance, to fulfil this promise that the NPP made in its manifesto.

50. Also, in their 2016 Manifesto, the NPP promised to remove both components (1% and 2%) of the Special Import Levy. They removed the smaller component (1%) in 2017 but extended the larger component (2%) to December 2019. Again, we will urge the President, through the Minister for Finance to keep its promise of removing the 2% Special Import Levy.

51. Furthermore, the Government in 2017 decided to extend the National Fiscal Stabilization Levy (NFSL), (5%), to December 2019. To lessen the plight of Ghanaian businesses, we will entreat, the Government to honour its promise of shifting from Taxation to Production by not seeking a renewal of the NFSL.

52. We would like to appeal to the President, through the Finance Minister, to use the opportunity to address the plight and suffering of the average Ghanaian who cannot keep up with the increase in taxes (communication, electricity, fuel, water) and not come to the floor with the usual slogan of “we inherited a mess in 2017”. At least talk about the heavy investment in the oil and gas infrastructure and the fiscal buffers you inherited.

53. Mr President, Ghanaians are mocking at your usual slogan of “moving economic policy from taxation to production”. Your so-called “production policy” has not been productive. It has caused countless job losses, shut-down of many businesses, deteriorating livelihoods, and poor tax revenue performance due to a weakened real sector. I am not sure you have made time to count the number of businesses that have closed along the Spintex road, within the industrial areas, and the Accra and Tema Central Business Districts.

54. The Minority insists that the approach adopted in the so-called banking and financial sector clean-up is the most reckless and inhuman option.

55. Contrary to initial assurances that depositors’ funds will be protected and jobs will be saved, the Minority notes that none of these assurances has been kept. The mess has further aggravated the unbearable hardships Ghanaians are currently experiencing with the overall negative effect on larger Ghanaian economy yet to be thoroughly quantified.
We expect the Finance Minister to put out concrete measures to address known payments of depositors and the salvaging of jobs in this last Budget of the Akuffo – Addo Government.

56. Times are really hard, and you must act, Mr. President. The hardship is real and not cosmetic like your macroeconomic indices that cannot translate into improved livelihoods.

A. Will this budget end the unprecedented suffering and misery of Ghanaians?

B. Will this budget address the growing unemployment and escalating hopelessness of the youth?

C. Will this budget settle the long outstanding payments of government contractors and suppliers, many of whose businesses have collapsed and some have died out of frustration.

D. Will this budget ensure that employees in government institutions and programmes such as NABCO, Youth in Afforestation, Teacher and Nurses trainees paid their mounting arrears?

E. Will this budget ensure that the statutory arrears such as District Assemblies Common Fund (DACF), National Health Insurance Levy (NHIL), GETFund, which have paralyzed the work of assembly, deteriorated the NHIL and devastated the educational system be paid.

 

Source: therepublicnewsonline.com/Felix Nyaaba