The Minister for Finance under the erstwhile John Mahama administration, Seth Terkper, has reacted to an explanation given by Governor of the Central Bank, Dr. Ernest Addison, to government’s constant exclusion of exceptional costs from its fiscal deficit calculation.
The former Finance Minister has, since the incumbent government adopted what he describes as an “unconventional” computation of the fiscal deficit, drawn attention to governments reporting parallel macroeconomic data – particularly data on fiscal deficit – to Ghanaians and the International Monetary Fund (IMF).
He has been very vocal about the incumbent’s sticking to this non-conventional method of computing the nation’s fiscal deficit.
Speaking at the recent 97th Monetary Policy Committee (MPC) press briefing, Dr. Addison noted that the new calculation method, introduced two years ago under the International Monetary Fund (IMF) programme, was to monitor the fiscal deficit performance of the budget.
“In 2018, when we were under an IMF programme, in order to be able to monitor the budget performance, it was important that we computed the deficit to exclude the energy and financial sectors, as those were legacy problems that we had inherited.
“Now that we have finished the programme, given the developments in 2020 in the wake of the pandemic, this is the time to relook at that area—the broader fiscal deficit which includes the energy and the financial sector issues,” the central bank governor explained.
He said, over the medium term, there would be a need to redefine the broader fiscal deficit, which gives a better sense of the burden on the budget.
But in a rebuttal, Mr. Terkper said the governor’s explanation was untenable, adding that government intentionally excludes exceptional costs to show “impressive” but unrealistic fiscal deficit figures.
Mr. Terkper stated that the governor’s excuse is flawed given the fact that the IMF programme, which begun in 2014 under the NDC and inherited by the NPP, mandated that exceptional costs be computed as part of the nation’s fiscal deficit.
“The excuse that exceptional costs had to be separated from the other costs incurred by government because of the IMF programme is not tenable because while under the IMF programme, the most exceptional cost for the NDC aside the banks and energy arrears was another legacy (emphasis) single spine wage overrun and the IMF insisted that we quantify the costs and spread it over 3 years and add it to our fiscal framework and compute it as part of our fiscal deficit,” he stated.
According to Mr Terkper, Ghana’s fiscal framework adopted since 1980s, makes room for the computation of both exceptional costs and exceptional revenue.
He made reference to the fact that exceptional revenue from the HIPC programme Ghana underwent in the 2000s was added to government’s total revenue and included in the budget.
The former finance minister noted that the incumbent government includes exceptional revenue, such as the legacy ESLA receipts, to its total revenue and puts it in the budget, but excludes exceptional ESLA-based costs.
“Exceptional revenue like HIPC and others were part of the budget, it has always been part of the budget. Under former President Rawlings, divestiture receipts coming in was recorded as part of revenue, so the fiscal framework takes care of exceptional costs and revenue,” he noted.
“This government includes exceptional revenues from ESLA to its total revenue and puts it in the budget, but treats exceptional costs paid from ESLA differently,” he added.
Seth Terkper averred that the much talked about exceptional costs from the financial and energy sectors were determined by the NDC Government in 2016 through an audit assessment conducted by the BoG.
“ESLA was not an obligation under the IMF programme, it was an initiative by Mr. Mahama and the IMF was informed about it, and ESLA was simply to cater for the financial and energy sector costs because crude oil prices then had plunged, so ESLA was a way to clear the debts in the two sectors,” Mr. Terkper intimated.
“We did the first restructuring of the sectors and the IMF was aware of it – we restructured VRA’s portion of the banking costs and used part of revenues from ESLA to pay for it – we put aside GHS250 million for banks as cash injection and also did restructuring worth GHS2.2 billion with 11-13 banks and the IMF was aware of all of these things,” he emphasized.
According to Mr. Terkper, what he now finds surprising is not the fact that the incumbent government treated exceptional costs as footnotes, but that the IMF accepted that exceptional costs be excluded from the fiscal framework as claimed by the government.
Did BoG governor confirm “parallel” reporting to IMF?
In a related development, Mr. Terpker asked the question, did the BoG governor confirm “parallel” reporting to IMF?
In his view, the Governor’s views may be well-meaning and worth noting by the fiscal authorities. However, it confirms his view, as buttressed by the Minority, on the “parallel” reporting of our fiscal data to Ghanaians and the IMF.
It should be noted that even the IMF Resident Representative had said publicly that it is an exclusive option of the Ghanaian authorities. This also appears to be untrue, the former Finance Minister pointed out.