Terkper criticizes the ‘unconventional’ calculation of the government’s fiscal deficit

Business news for Monday, November 30, 2020

Source: www.ghanaweb.com

2020-11-30

Former Finance Minister Seth Terkper has said that an explanation offered by Central Bank Governor Dr. Ernest Addison about the government’s continued exclusion of exceptional costs in calculating the fiscal deficit is unsustainable.

During a question and answer session at the 97th Monetary Policy Committee (MPC) press conference that just ended on Monday, November 23, Dr. Addison said in response to a question about why the government has excluded since 2017 the exceptional costs in its calculation of the fiscal deficit despite the red flags on the calculation method, which was to monitor the performance of the budget fiscal deficit.

“In 2018, when we were under an IMF program, in order to monitor budget performance, it was important that we calculate the deficit to exclude the energy and financial sectors, as those were inherited problems that we had inherited.

“Now that we have finished the program, given the developments in 2020 in the wake of the pandemic, now is the time to review that area: the broader fiscal deficit that includes energy and financial sector problems.

“In the medium term, we need to redefine the broader fiscal deficit, which gives you a better idea of ​​the burden on the budget,” explained the governor.

However, Terkper disagrees with this explanation and accuses the government of excluding exceptional costs in its attempt to misrepresent impressive fiscal deficit figures.

Terkper said the governor’s excuse is not accurate because the IMF program, which began in 2014 under the John Dramani Mahama administration, mandated that one-off costs be counted as part of the nation’s fiscal deficit.

“The excuse that exceptional costs had to be separated from other costs incurred by the government due to the IMF program is not sustainable because, while under the IMF program, the most exceptional cost to the [John Mahama administration] Apart from the banks and the energy arrears it was another legacy (emphasis) The Single Spine wage overrun and the IMF insisted that we quantify the costs and spread them over three years and add it to our fiscal framework and calculate it as part of our fiscal deficit, ”he said. set.

Terkper spoke to business journalists last week about a wide variety of economic topics, including what he describes as unsustainable debt figures under the current administration.

The former Finance Minister under the John Mahama administration also stated that the administration led by Nana Addo Dankwa Akufo-Addo has conspicuously adhered to an unconventional method of calculating the national fiscal deficit.

According to Mr. Terkper, the Ghanaian tax framework adopted since the 1980s leaves room for the calculation of both exceptional costs and exceptional income.

He said the one-off income from the highly indebted poor countries (HIPC) program that Ghana entered in the 2000s was added to total government income and also budgeted.

However, he noted that the current administration includes exceptional income, including income inherited from ESLA, in its total income and includes it in the budget, but excludes exceptional costs based on ESLA.

“Exceptional revenues like HIPC and others were part of the budget, it’s always been part of the budget. Under former President Rawlings, the divestment income that came in was recorded as part of revenue, so the tax framework handles exceptional costs and revenues.

“But this government includes ESLA’s exceptional revenue into its total revenue and puts it in the budget, but treats ESLA’s exceptional costs paid differently,” he said.

The former finance minister further stated that the exceptional costs of the financial and energy sectors, which are so much talked about, were determined by the NDC government in 2016 through an audit assessment conducted by the central bank.

“ESLA was not an obligation under the IMF program, it was an initiative of Mr. Mahama and the IMF was informed about it, and ESLA was simply to cover the costs of the financial and energy sector because crude oil prices had plummeted, so ESLA was a way of paying off the debts in both sectors ”, insinuated Terkper.

“We did the first restructuring of the sectors and the IMF knew about it, we restructured the VRA portion of the banking costs and used part of the ESLA income to pay it, we reserved Ghs 250 million for the banks as a cash injection and also made a restructuring for 2,200 million Ghs with 11-13 banks and the IMF was aware of all these things ”, he emphasized.

Terkper said it was wrong for the current administration to treat one-off costs as footnotes in calculating the fiscal deficit.