IFS Urges Government To Provide Information On Energy Sector Debts

The Institute of Fiscal Studies (IFS) has urged the government to provide Ghanaians with detailed information on the energy sector debts.

Mr Leslie Dwight Mensah, an Economist at the IFS, said the surge in amortization spending in the mid-year budget, on account of crystallized energy sector contingent liabilities, exposes the poor management of fiscal risks emanating from the energy sector.

“This situation requires decisive national attention and action, and we urge the government to provide more detailed information on the energy sector indebtedness and consult widely regarding the best options to deal with it”.

Mr Mensah said this when he made a presentation on the “IFS Assessment of 2019 Mid-Year Fiscal Policy Review” in Accra.

“Overall, the fiscal policy path the country is on, is unsustainable, as the country’s indebtedness looks likely to worsen on the basis of current spending and borrowing decisions. The government has to reverse course with a strategy that will reduce borrowing significantly in order to improve the debt dynamics, with regard to the ballooning debt service costs.”

The meeting was to assess the notable developments in the mid-year review and make further recommendations to safeguard fiscal stability, which had come under threat from both revenue and expenditure management difficulties.

Mr Mensah said relative to the original budget statement, government borrowing in 2019 was set to rise on the back of the mid-year supplementary expenditure request, which Parliament had since approved.

He said this was seen in the projected increases in the budget deficit (by GH¢1.2 billion) and debt amortization spending (by GH¢5.2 billion, to pay off crystallized energy sector contingent liabilities) in the face of an unchanged total revenue projection.

He noted that the total supplementary request of GH¢6.4 billion was therefore, going to be funded by debt.

He noted that this additional borrowing would further increase the debt stock, which hit GH¢203.9 billion in June 2019, and the debt-to-GDP ratio, which reached 59.2 per cent in the period.

Mr Mensah said prior to the mid-year budget, the IFS had reviewed the economy’s performance and provided recommendations to the government to address challenges identified.

He said the Minister in his budget statement cited the debt-to-GDP ratio being less than 60 per cent as one of the positive macroeconomic indicators.

Mr Mensah said this suggests that the fall in the debt ratio to below 60 per cent of GDP since the rebasing of the national income accounts in 2018 had given a false sense of security about the debt position.

“In reality, however, there should be no comfort taken in a lower debt-to-GDP ratio in the present circumstances,” he said.

He said a better way to assess the debt and its sustainability is to look at what was happening to debt service expenditure in relation to government revenue; adding that debt service expenditure, comprising interest and amortization payments, absorbed 26.8 per cent of total revenue and grants in 2013, but this increased rapidly to 47.9 per cent in 2016.

He said the ratio then fell to 44.5 per cent in 2017 and to 44.3 per cent in 2018.

He said with the revisions to spending in the mid-year budget, the ratio is set to rise sharply to 51.2 per cent in 2019 — close to double the 2013 ratio.

“It is also crucial to eliminate extra-budgetary expenditures and borrowing, which despite their being excluded from the budget deficit and in some cases, the debt stock, still create debt service liabilities that must be met from the same limited revenue envelope available to the government,” he said.