Government, this year, is scheduled some GHc 7,160 million in arrears.
Interestingly most of this – GHc6,430 million comprises relatively short-term arrears incurred from last year, as against the longer-term arrears inherited from the previous political administration following the most recent change of government at the start of 2017 of which GHc730 million is to be cleared this year.
It is the latter that has been making the headlines, as the incumbent government strives to pay them off, but even while doing so it has been incurring even bigger arrears itself, albeit arrears which are necessarily much shorter term in nature, primarily being disbursements due to statutory funds such as the District Assemblies Common Fund and the cost of bonds issued to bridge the capital deficits of the universal banks liquidated last year for solvency shortcomings.
Information available to Goldstreet Business from the Summary of Budgetary Central Government Operations indicates that of the amount, payment of cash arrears and promissory notes to statutory funds is estimated at GHc 930 million. The other GHc 5, 500 million which is related to the financial sector clean-up for which government has issued bonds which however, are yet to be monetized.
In addition to this, as part of the implementation of the central government arrears clearance plan adopted in 2017, to clear arrears inherited from the previous administration, GHc 730 million will be cleared. The arrears clearance will cover only non-road arrears in 2019, with GHc 1, 500 million – this being the balance of the inherited arrears – due to be settled in 2020.
However, 2019 budgets statement indicates that roads projects are to be paid from the non-road and road arrears vote which has been made.
The large volume of arrears being carried over from last year reveals that while government has made tremendous achievements in curtailing the fiscal deficit as measured on a cash basis – halving it to 3.9 percent in 2018, using rebased economy figures – this has been achieved by failing to disburse key budgetary allocations. These arrears have not shown up in government’s economic data presented to the public because it has tended to use data on cash, rather than commitment basis.
In actual fact though, the narrowing of the fiscal basis has been in part achieved by delaying budgetary payments to some statutory funds. Government’s critics note that this has happened even though the incumbent administration has put a 25 percent of total revenues on such payments – much to the chagrin of their beneficiaries – on the grounds that hitherto, statutory payments were consuming too large a proportion of total revenues, thus leaving government with very little flexibility with regards to spending on development programmes and projects.
To government’s credit however, these arrears only comprise 14.5 percent of the payment arrears carried over from 2018. The bulk of those arrears are in the form of the resolution bonds issued by government to bridge the capital deficits of the five indigenously owned universal banks liquidated by the Bank of Ghana during the course of 2018.
But their classification as arrears carried into 2019 indicates that they have not yet been backed by actual money and therefore are effectively promissory notes rather than actual capital.
Instructively, while the BoG monetized much of the bonds it held itself in October last year, Consolidated Bank which has taken over the liabilities of seven liquidated banks since September 2018, is only now negotiating with an international bank to monetize over GHc4 billion in resolution bonds held by it, that were issued by government last year.
Importantly though, government’s budgetary allocation to clear the arrears generated by the bonds issuance is a solid assurance that it will come up with the actual cash this year.
Government has committed to tapping new financing schemes solely to fund already budgeted spending; for the GETFund, additional borrowing will only serve for arrears clearance.
This additional financing to be raised by borrowing for GETFund to clear arrears, backed up by earmarked sale tax, up to US$500 million per year for the next three years.
However, authorities have assured that borrowing would not exceed the equivalent of US$250 million, which would be used solely for budgeted spending, such as the arrears payment.
Preliminary data available as at the end of September 2018 indicate that payment of arrears amounting to GHc 856.2 million, equivalent to 0.3 percent of GDP of have been cleared.
A report by the parliamentary committee on roads and transport has shown that the government still owes road contractors more than GHc 3.69 billion for projects financed from the consolidated and roads fund.
Since January 2017, government has awarded road contracts amounting to GHc 6.5 billion, covering about 258 roads and 20 bridge projects, totaling a little over 3,000 kilometers.
(By Joshua W. Amlanu & Toma Imirhe)