Terkper Gets Tough As Crude Oil Prices Decline

John Mahama administration has begun implementing certain home-grown strategies to rectify government’s budgetary challenges threatened by rapidly declining oil revenue for Ghana and that requires robust and disciplined economic management measures on the part of gov’t agencies and corporate businesses.

Announcing as part of its disciplinary measures to make the reduction in expenditures effective and ensure the achievement of fiscal objectives, the tough-talking Minister stated that, claims for forex losses by companies which have existing contracts denominated in foreign currency and who incur foreign exchange losses will no longer be entertained by his outfit.

“Companies which have existing contracts denominated in foreign currency and who incur foreign exchange losses are to claim such losses as allowable expenses under the income tax laws. Consequently, no claims for forex losses will be entertained.”

His statement comes in the wake of global oil revenues drying up due to rapidly declining crude oil prices on the world market.

The situation is threatening to deprive Ghana of significant oil revenues needed for financing significant portions of the national budget.

The Finance Minister Terkper who has vowed to strengthen the structure of the Ghanaian budget to adapt to changing economic trends, was forced last week to persuade the Ghanaian Parliament amidst protests about the need for a flexible national budget that can quickly take into account sudden global trends that affects economic prospects in the country.

The uproar from the legislature was caused by the fact that there is a stipulated budget review schedule every midyear, however, Mr. Terkper insisted that given the emergency situation caused by Ghana’s rapidly declining oil revenue, the legislature should allow intermittent reprojections of the budget in times unforeseen economic situations.

The Finance Ministry had earlier estimated US$99.38 per barrel for 2015, but currently crude prices are hovering below US$60 per barrel, a situation that will lead to a significant drop in Ghana’s oil revenue; from an estimated GH¢4.2 billion down to GH¢1.5 billion.

“Based on this price assumption, total petroleum receipts for 2015 is estimated at GH¢1.5 billion, compared with the 2015 Budget estimate of GH¢4.2 billion,” the Ministry of Finance said in a statement released recently.

“…a Petroleum Benchmark Revenue (PBR) price of US$99.38 per barrel and a volume of 102,033 barrels per day was estimated in the 2015 Budget,” the statement read.

“As a result of the reduction in Goods and Services, Capital and transfers to the National Oil Company, the estimate for total expenditure and arrears clearance for 2015 are expected to decline by GH¢1.5 billion from GH¢41.2 billion to GH¢39.7 billion.

Based on these expected changes in total revenue and grants as well as total expenditure and arrears, the fiscal deficit for 2015 is estimated to be GH¢10.0 billion (7.5 percent of GDP), up from the 2015 Budget target of GH¢8.8 billion (6.5 percent of GDP)”, the Finance Minister disclosed to both the minority and majority members on the floor of Parliament last week.

Of the earlier expected oil revenues, the government had outlined how it was going to allocate them: “Of this amount, GH¢2.5 billion was allocated as Annual Budget Funding Amount (ABFA); GH¢1.1 billion was estimated to be transferred into the Ghana Petroleum Funds, and GH¢697.7 million to the National Oil Company,” but apparently, the government has been forced to make a major reconsideration of these planned allocations.

“To make the reduction in expenditures effective and ensure the achievement of our fiscal objectives following measures are being implemented:

i. The expenditure ceilings are being enforced through implementation of quarterly budget allotments on MDAs budgets. Expenditures will be prioritized by MDAs based on the budget allotments;

ii. Requirements for Specific Warrants and Commencement/Continuation Certificates under the GIFMIS will ensure that capital expenditures are within the new limits;

iii. Continuation of the Government policy on limit on the award of new contracts by MDAs and Statutory Funds as well as the curtailment of extensions and variations in ongoing projects will be enforced;

iv. Alignment of transfers to Statutory Funds to central government programmes.

v. Disallowing MDAs and MMDAs from awarding contracts with provisions that allow indexation in foreign currency and denomination of local costs in foreign currency. In exceptional circumstances where contracts need to be awarded in foreign currency, prior approval must be obtained from the Ministry of Finance; and Reforms

Mr. Terkper also outlined reforms to address the payroll and HR challenges in the public service and check the size of the compensation bill as including:

i. The provision of monthly Payroll reports to all Sector Ministers for verification and validation. The exercise is aimed at informing Sector Ministers and heads of MDAs of the status of their payroll to ensure that they check the payroll and HR management issues in their various units;

ii. Initiation of an exercise to update the bank account details of employees on the mechanized payroll system as part of reforms to clean the mechanized payroll data. The names of employees with zero bank accounts numbers were identified and suspended from the payroll system. As at the end of February 2015, 44,496 names out of the total number of 47,186 employees were validated by the Audit Service and restored onto the payroll. The records of the remaining 2,690 employees who did not submit the required documents were suspended from the payroll permanently and are to be investigated for appropriate sanctions to be applied;

iii. Implementation of an exercise to permanently expunge and stop the salaries of employees on the mechanized payroll without Social Security numbers;

iv. Using the E-Switch for the payment of allowances of National Service Personnel and all employees on the mechanized payroll. The aim of this exercise is to validate employees using the E-Switch database and ensure a single identity for each employee on the payroll; and

v. Validation and certification through the Electronic Salary Payment Voucher System E-SPV system have now become a pre-condition for payment of salaries to employees. The automation has addressed the delays in updating the payroll and, in particular, the deletion of separated staff from the payroll. Unit heads, thus, determine who should be paid for a particular month.”

However, the Finance Ministry is upbeat about the prospects of the economy; based on the measures it says it has put in place to counter the gloomy effects of the declining oil revenues.

“I think one of the things we have done as Ghanaians is managing our crisis. I will say that we have probably managed this crisis far better than we would have…” Seth Terkper said in a joint interview on Citi FM and Radio Gold on Wednesday.

In the statement, the Finance Minister said: “The medium term prospects of the economy remain bright. This is supported by expected additional oil and gas production, enhanced services sector performance, and improvements in agriculture, among others.

"Government will continue to work tirelessly to ensure that these positive prospects, as well as our macroeconomic stability and socio-economic objectives, are not derailed by external and domestic shocks,”

Meanwhile, the Finance Ministry has said it has devised smart ways to offset the shortfall, “ To address the revenue shortfalls noted above and ensure the achievement of the objectives of the ongoing fiscal consolidation, and keep borrowing in line with the levels approved in the 2015 Budget, key measures being implemented include an across the board reduction in expenditure ceilings on Goods and Services and Capital by GH¢344.0 million and GH¢868.4 million, respectively, as well as a drawdown of an amount of GH¢487.2 million from the Ghana Stabilization Fund.”

According to the Finance Ministry, the measures to address the impact of these shocks will yield the intended benefits and ‘significantly contribute to the achievement of our short-to-medium term fiscal consolidation objectives’.