Paragraph 25 of the FY2019 Budget notes that the government was on course to meet its “fiscal deficit target of 4.5 percent for the year (3.7 percent in the rebased series)” and that “this will be the second consecutive year this Government has achieved its fiscal deficit target”. We have been disputing this claim and remain skeptical—as in two previous articles where we disputed the use of “offsets” to neutralize part of Ghc7 billion arrears in the 2017 Budget.
Exceptional treatment of arrears
As shown in Table 1, MOF uses an unusual approach to project the deficit of 3.7 percent for FY2018, by adding Ghc2.2 billion “banking sector (bailout) costs” to “footnotes”. Given progress with the public financial management (PFM) reforms, these should be passed through the Accounts Payable module in GIFMIS, our electronic “book of record”. The footnote treatment has a similar effect as the “offset” of Ghc7 billion arrears in FY2016/2017.
Table 1: FY2019 Budget Extracts (Ghc million)
Budget Items (Ghc million) 2018 Budget Original 2018 Revised Budget (Mid-Yr) 2018 Projected Outturn 2018 Program Q1-Q3 2018 Prov Q1-Q3 I. ABOVE THE LINE Total Revenue & Grants 49,401 49,059 46,808 35,599 32,201 Total Expenditure 59,514 59,172 56,965 42,714 41,493 Overall Balance (Commitment) (10,113) (10,113) (10,157) (7,115) (9,292) II. BELOW THE LINE Overall Balance (Commitment) (10,113) (10,113) (10,157) (7,115) (9,292) Net change in arrears i/ (858) (858) (858) (670) (856) Overall Balance (Cash) (10,971) (10,971) (11,015) (7,784) (10,148) Discrepancy ii/ (0) (0) 1,098 Overall balance (incl. Divestiture & Discrepancy) iii/ (10,971) (10,971) (11,015) (7,784) (9,050)Note (i) is arrears brought forward (b/f) plus accumulation less payments; (ii) is discrepancy while (iii) adds both.
Source: Appendix 2A: SUMMARY OF CENTRAL GOVT OPERATIONS (2018)
Since the discrepancy at end-Q3 of FY2018 is positive and unusual it makes the Overall Balance (cash basis) lower than the Overall balance (commitment basis), eliminates it the end-December 2018 provisional outturn, and increases the fiscal deficit.
Table 2: Budget 2019 Memorandum [Footnote] Items (Appendix 2A)
III] Nominal Budget Items (Ghc mill.) 2018 Orig 2018 Rev 2018 Prov 2018 Prog 2018 Prov Budget Budget Outturn Q1-Q3 Q1-Q3 Overall Balance (cash, discrepancy) (10,971) (10,971) (11,015) (7,784) (9,050) Balancing item: Financial sector cost iv/ (2,201) (2,201) (2,201) Overall Balance (cash, discrepancy, and financial sector cost) (13,172) (13,217) (9,985) (9,050) GDP Nominal (GDP) Overall GDP 298,699 298,699 298,699 298,699 298,699 Non-oil GDP 285,921 285,921 285,921 285,921 285,921
Table 2 (note iv) is a significant footnote since it shows it omits tje Ghc2.2 million from total arrears “below-the-line” in Table 1. This is exceptional since it should increase “net change” in arrears to Ghc3,060 million, overall balance (cash, discrepancy, and financial sector costs) to Ghc13,217 and thefiscal deficit of 3.7 percent to 4.4 percent of GDP.
Table 3: Budget or fiscal deficit (percent of GDP)
IV. BUDGET DEFICIT (% of GDP) 2018 Original 2018 Rev 2018 Prov 2018 Prog 2018 Prov 2018 Prov a) Above the line (cash basis) Budget Budget Outturn Q1-Q3 Q1-Q3 Non-oil Overall balance (commitment) (3.4) (3.4) (3.4) (2.4) (3.1) (3.6) b) Below the line (cash plus arrears) Overall balance (cash) (3.7) (3.7) (3.7) (2.6) (3.4) (3.9) Overall balance (cash + discrepancy) (3.7) (3.7) (3.7) (2.6) (3.0) (3.9) c) Footnote (overall plus financial cost) Discrepancy 0.0 (0.0) 0.0 (0.0) 0.4 0.0 Overall balance (cash + discrepancy + financial cost) 0.0 (4.4) (4.4) (3.3) (3.0) (4.6)
Treatment of past exceptional arrears
The Gh2.2 billion is large bit its exceptional treatment offends the consistency rule or convention in financial and fiscal accounting. Some past examples buttress the point:
The inclusion of “bailout costs” in Appendix Tables (2019 Budget) to make material and unusual changes to our fiscal rules is new, from fiscal records available since FY2000. The unusual approaches started in the FY2017 Budget, presumably on the blind side of domestic and foreign fiscal oversight institutions.
Recap of FY 2016 “Offset” of Ghc 7 billion Arrears
The other breach of fiscal rules uses “offsets” to neutralize part of the Ghc7 billion “arrears” that the 2017 Budget (par. 7/8) stated as unpaid in FY2016. As Table 4 shows, this offset—and change in end-period “cut-off” rules discussed later—increased the deficit to 10.3 percent of GDP—about 6.4 % (without a setoff it would be 4.1%).
Table 4: Cash Accounting Portion of Fiscal Table
Budget Items (Ghc mill.) FY2016 BUDGET FY 2016 (2017 BUDGET) Prov 2016 Budget 2017 Budget [Original] Budget [Supplmt] Budget Revised Budget Prov. Outturn Fiscal Tables [W-site] 1 2 3 4 5 6 7 8 Total Revenue & Grants 38,038 37,889 38,038 37,889 33,678 33,678 44,962 Less Total Expenditures i/ 43,505 43,985 44,131 43,983 51,126 51,884 54,395 o/w Other current expenses 9,776 10,615 10,403 11,242 10,255 10,255 10,255 o/w Other outs’ding claims ii/ Na Na Na Aa 5,036 5,036 Refunds 627 Deficit (5,467) (6,096) (6,093) (6,094) (17,448) (18,206) (9,434)
The 2018 and 2019 Budgets exclude further end-2016 data but we use the Fiscal Tables from MoF’s website to augment the information in making the following observations:
Table 5 shows the “accrual” or arrears portion of the fiscal tables where the fiscal authorities make the second “offset” entries, including the following observations:
Table 5: Arrears shown as positive
Budget Items (Ghc mill.) FY2016 BUDGET FY 2016 (2017 BUDGET) Prov 2016 FY2017 Budget [Original] Budget [Supplmt] Budget Revised Budget Prov. Outturn Fiscal Tables [W-site] Original Budget 1 2 3 4 5 6 7 8 Overall bal. (commitment) (5,467) (6,096) (6,093) (6,094) (17,448) (18,206) (9,434) Non-Road/Cl’rce (net change) (2,313) (2,313) (2,313) (2,313) 2,715 2,598 (3,743) o/w Offset (positive) item iii/ 5,035 5,035 Clearance of Outs. Cmtm (2313) (2940) (2313) (2313) (2320) (2437) (3743) Overall bal. (cash) (8,407) (8,409) (8,406) (8,407) (14,733) (15,608) (13,176.5) Discrepancy 1,587 1,686 Overall bal (incl. Dvst&Discrp) (8,407) (8,409) (8,406) (8,407) (13,146) (13,922) (13,177)Note (iii): Total of umpaid commitments (Ghc4272 m) plus Outstanding payments (Ghc743 m)
These are significant changes from the past, especially, the Mahama administration’s 3-year plan to clear the single-spine wage and subsidy arrears under the 2014 IMF ECF Program—also a condition for budget support by the World Bank, AfDB and Development Partners (DPs).
Conclusion
As a result of these discretionary changes, the government noted that it had paid off the arrears and reduced the deficit from 10.3 percent in 2017 (revised in the 2018 Budget to 9.3 percent) to 5.6 percent. Yet, there are announcements of major plans to clear these same arrears, including the possible of “factoring” to discount the amount paid to contractors and suppliers. It is important that these payments are passed through the GIFMIS Accounts Payable module to regularize all past offsets and footnote entries in our fiscal data.
Besides the “footnote” and “offset” approaches, there is the departure from the end-period “cut-off” rules for weekends and holidays to reverse the payment of interest from FY 2017 to FY2016. The inconsistency is clear because both FY2017 and FY2018 fell on weekends and there was no mention in the FY2018 or FY2019 Budgets that the government had applied the rules to itself.
In an era of Fiscal Responsibility laws and rules, we must respect the consistency rule in fiscal and financial accounting in recording fiscal data. We must defend or stop changing time-tested fiscal rules—cash accounting, as complemented by given methods for calculating and adding arrears or commitments. We must use the impending Regulations for the Public Financial Management Act (PFMA), 2016 (Act 921) to remove the power to make discretionary changes to our fiscal rules.
Source: thebftonline.com