The Public Interest and Accountability Committee (PIAC) has warned against the use of oil revenue as collateral for government borrowing, arguing that the practice could prevent the country from making the most of its hydrocarbon resources.
The warning comes after an analysis by PIAC showed that between 2014 and 2019, US$903million was withdrawn as excess over the cap on the Ghana Stabilisation Fund (GSF) to be used for supporting the Annual Budget Funding Amount (ABFA) – which is the portion of petroleum revenues earmarked for government spending in a particular year; but 90 percent of that fund went into the Sinking Fund, a fund created to shore-up government’s ability to borrow and pay.
“Looking at 90 percent going into the Sinking Fund, it is right to say that it is feeding into government’s appetite to borrow; you put in more money so that you can show to lenders that I have money in the Sinking Fund, and if the debt matures I can use this to pay for the debt. By doing this, we are starving the Contingency Fund, which should receive money just like the Sinking Fund. So, on what basis are we sharing the money between the various funds?” PIAC’s Technical Manager, Mark Agyemang, told the B&FT.
The Contingency, established by the 1992 Constitution, caters for unforeseen national emergencies like the COVID-19 pandemic, while the Sinking Fund/debt service fund is set aside for debt repayment or as collateral for borrowing.
In 2019, US$189.13million was withdrawn as excess over the cap (ceiling) of US$300million placed [at the discretion of the Minister of Finance] on the GSF. The excess was withdrawn into the Sinking Fund. This, PIAC noted in its 2019 annual report, defeats prudent management of oil funds and could have repercussions on socio-economic development.
The Committee, which is kicking against what it described as collateralisation of petroleum revenue, noted that government usually caps the GSF so low because it wants to put more money into the Sinking Fund to further its borrowing posture. This, it lamented, affect gains from the GSF, which is usually housed in short-term investments.
“The other thing is that the ABFA, which the government uses through the budget to implement projects and programmes, is side-lined. We are giving money to the Sinking Fund to the detriment of financing projects and programmes of national development,” Mr Agyemang added.
Intrinsically, he said, the Sinking Fund encourages government’s borrowing appetite – noting that debt ratio to GDP has consistently risen since the Sinking Fund became operational, from 51.16 percent to 63.85 percent between 2014 and 2019.
He added: “If you look at the analysis, since we started putting money into the Sinking Fund, the debt to GDP ratio has gone up; so there is a clear linkage that when we started operationalising the Sinking Fund in 2014, our borrowing spree also went up,” he added.
Currently, the Petroleum Revenue Management Act (PRMA) is being reviewed; and Mr. Agyemang says is it is important to put in certain percentages regarding how much should go into the various funds, particularly the Contingency Fund – which he said is severely under-resourced.
“Secondly, a basis should be given for capping the GSF at a certain amount; you can’t cap it so low because you want to put money into the Sinking Fund. The essence of the GSF is to grow enough funds in order to cushion the national budget in times of revenue shortfall from petroleum,” he argued.