In his 2023 Mid-Year Review (MYR) Statement to Parliament, the Minister for Finance (Hon. Ken Ofori-Atta) made the following significant departure to date from Ghana’s prudent public financial reforms and best practice in Paragraphs 72 and 73—
“Mr. Speaker, before discussing the 2022 fiscal outturns, we would like to note that the fiscal anchor, in the context of IMF-supported PC-PEG, is the Primary Balance on commitment basis. To align with this requirement, the Government, therefore, had indicated in paragraph 210 of the 2023 Budget Statement, that the fiscal accounts would, henceforth, be reported on commitment basis, thereby, taking into account outstanding unpaid commitments of Government”.
Consequently, the MYR Statement and 2024 Budget presented to Parliament appear to place significant emphasis on the Primary balances (PBS)—as shown in various Memoranda Items, Table 3A [Summary of Central Government Operations]. The recent FY2024 Budget continues to show the PBs and Fiscal Balances (FBs), as summarized in Tables 1A and 1B below.
Table 1A: Summary of Primary Balances (Nominal)
Table 1B: Summary of Primary Balances: Percent [%] of GDP
Source: 2023 MYR & 2024 Budget Statement
The Percentage (%) to GDP in Table 1B is shown in Graph Figure 1 below, as a visual expression of the trends underlying these balances or budget performance.
Figure 1: Primary Balance Medium-Term Estimates
As discussed later, the main differences between the Primary and Fiscal Balances are interest payment, arrears (routine and exceptional), and debt repayment or amortization. Primary Balance is Total Revenue less Total Non-Interest Expenditure. Since the Fiscal Balance is Total Expenditure, another definition is that the Primary Balance is the Fiscal Balance less Interest payments.
- Ghana needs a more ambitious fiscal target
From a policy and legal perspective, Ghana should set more ambitious fiscal targets than the IMF Program requires. These include (a) Overall Fiscal Balances (commitment and cash bases) targets; and (b) shift to semi-accrual accounting to account for arrears and other liabilities; and (c) a debt repayment or amortization methods (e.g., establishment of a Sinking Fund in FY 2014 to liquidate about US$550 million of the first 2007 Sovereign Bond of US$750 million.
These are necessary since it is very fiscally challenged, with huge arrears, and has defaulted in meeting debt commitments. Hence, the Primary Balance shows an optimistic (positive) path to meeting its commitments under the IMF Program it is implementing. Secondly, Ghana is now a Lower Middle-Income Country (L-MIC) and must begin to incorporate more sophisticated criteria into its fiscal management—also as a way to minimize its current fiscal risks.
While the Article admits that the Primary Balance (PB) is an accepted fiscal performance target, it is a softer fiscal performance target compared to the Overall Fiscal Balances (FB). The reason is that the PBs are based on actual cash flows in Low-Income Countries (LICs) and, as with countries in transition like Ghana, many Lower Middle-Income Country (MIC) status.
- Importance of Arrears in the Fiscal Balances
For Ghana, the use of the primary balances remarkably undermines the more prudent shift to semi-accrual rules under earlier fiscal and public financial management (PFM) reforms. The article acknowledges that Ghana’s budgets and past IMF Programs have cited the “primary balance” (commitment basis) as “fiscal anchor”.
Tables 2A and 2B, which compare the Primary and Fiscal Balances, show that Ghana could meet the PB criteria (green shade) but not the fiscal balances (red items). More important, it seems to be repeating the complacency from 2017 to 2019, when it showed superior fiscal performance through very low arrears (“offsets”) that relegate the exceptional balances to “appendix” or “memo” items in Budgets.