A case of budgetary complacency: (3) Disappearance of arrears-compensation, depletion and amortization



Part III begins with a discussion of the adequacy of the provision for arrears which continues to decrease from the end of 2016 and ends up reaching zero (0) in the Medium Term Expenditure Framework (MTEF) in 2021 and 2021 – after a slight increase in 2020, an election year. The article argues that a zero (0) amount of arrears or commitments is not technically feasible because it assumes that there will be no ongoing work on investment projects, in particular.

It also examines the classification of the 5,199.4 million Ghc increase in energy sector arrears as “amortization” in the mid-year review, supplementary budget and allocation. The government finance statistics (GFS) of the International Monetary Fund (IMF) define amortization as the repayment of the principal element of a debt, which occurs after the crystallization of contingent liabilities in the form of arrears or commitments and leads to borrowing and the accumulation of debt.

Revised 2019 budget and revised budget

The unconventional treatment of outstanding commitments maintains the provision for arrears (730 million Ghc) and budgetary balances not affected by arrears in the energy sector which have been accumulating since 2017. In addition to arrears, instead of showing exceptional expenditure in the main paragraphs (tables 7 to 10), the mid-year review relegates them to annexes 7 to 12.

Table 1 uses Annexes 11 and 12 to summarize the adjustments in the 2019 mid-year review, as well as the supplementary budget and revised appropriations.

Table 1: Summary of adjustments in the supplementary budget

the Review mentions significant arrears in the energy sector (over 5.1 billion Ghc) – and other official acknowledgments of outstanding commitments (e.g. entrepreneurs and pensions) but maintains the provision for arrears at 730 million Ghc.

Nevertheless, the supplement and the allocation (Annex 11, pages 67-68) reflect the related inflows and outflows of 162.9 million Ghc from the increase in ESLA withdrawals.

The question is whether to cushion energy backlogs in review and ownership. In addition, the president recognized significant pension arrears on May 1, but the table “offsets” the 300 million Ghc provision for social contributions with an equivalent amount in wages.

Insufficient but declining provision for “arrears”

The Review (pp35-36, paras. 159-169) refers to the ongoing restructuring of the financial sector, but Table 2 reduces the 2019 budget provision from 3.0 billion Ghc to zero (0) and deepens the budget gap created by the low provision (730 million Ghc) for arrears (Table 1) in the 2019 budget.

Table 2: No provision for banking sector rescue costs

Table 3 summarizes the arrears provisions in the MTEF (2020-22) and shows that the fiscal gap could widen instead of the false impression of projected fiscal consolidation.

Table 3: MTEF (2020 to 2022), including arrears

The growing gap is the result of the decrease in provisions for arrears, with a total amount for three (3) years of approximately 3.8 billion Ghc to 2.3 billion Ghc (2017); 858 million ghc (2018); and 730 million Ghc (2019), which is less than the “inherited” arrears at the end of 2016 of 7 billion Ghc. Table 4 continues with the memorandum items from the 2019 budget, which include the exceptional items in the budget tables since 2018.

Table 4: Memorandum items showing exceptional expenditure

The provision increases to 1.550 million Ghc (2020), obviously to cover the extraordinary election expenses of 2020.

However, the arrears fall to zero (0), which is not technically feasible as it is not possible to zero (0) Work in Progress (WIP) claims on investment projects.

The provision for bank rescue costs appears low as some contingent liabilities could crystallize, e.g. GAT sovereign guarantees, depositors reimbursement, employee benefits payment, assumption of cost of restructuring the banking sector. insurance.

The exam is unusually silent on the cost of Free High School (FSHS) even as 2019 marks the admission of the three (3) batches of students under the free banner.

The second serious point, besides reducing the arrears, is to treat the arrears of the energy sector (complementary) of 5.2 billion ghc in the supplementary budget and the credits as “amortization” – and to leave the provision for. Arrears unchanged at 858 million ghc.

Description of the energy sector debt in the 2019 mid-year review
The Glossary of Government Finance Statistics (GFS) of the International Monetary Fund (IMF) defines amortization as “the repayment of the principal of a debt … unlike interest, which is a charge for the use of money. borrowed ”. He further explains that “depreciation and interest are recorded in the balance of payments when they are due”. Table 5 shows the treatment as depreciation in the mid-year review.

Table 5: Arrears in Depreciation in Allocation 2019

Amortization of arrears in the 2019 mid-year review

The following observations are based on review citations in support of Table 5—

Interest, Expenses and Borrowing: “Upward adjustments in interest payments… as well as higher net domestic borrowing to meet some emergency security and energy spending in the first half of the year. year ”(p. 29 by 136). These seem to suggest

– the expenses accumulated before July (Q1 & Q2) that the MOF should have increased the arrears; Where

– loan to pay arrears — approved by Parliament retroactively since MOF did not adjust the arrears provision of 730 million Ghc; and

– neutralize arrears or exceptional expenditure – which will be consistent and rooted in the practice of “compensation” or omission of budget items since 2017.

– Contingent liabilities crystallized in amortization: “Mr. Mr. Chairman, the crystallization of contingent liabilities linked to energy under contractual obligations to purchase outright with independent electricity producers (IPP) estimated at 5.1 billion Ghc for 2019 is being amortized, thus increasing the external amortization requirement above the amount initially provisioned for in the 2019 budget ”(p.29, paragraph 139):

– it is common to borrow to clear (huge) arrears, the crystallized contingent liabilities must increase the arrears or exceptional expenses and financing – before the phase of loan and repayment or amortization, often not immediate.

– Increase in the levies of the Energy Sector Levy Act (ESLA): “The government proposes to increase the levies on the energy sector by 20 GHp / liter for gasoline and diesel and by 8 GHp / kg for LPG. This will increase inflows and allow the government to issue additional bonds to repay our energy sector debt obligations ”(p. 33 para. 153) – items in Tables 1 and 2.

Review of arrears in the Supplementary Budget and Allocation

Tables 6A and 6B treat arrears in the energy sector as an expense, payable from the increase in the ESLA levy or the ESLA obligation, after accumulation in Q1, Q2 or previous years).

Table 6 (a): Mid-year review 2019 (Supplementary budget and allocation)

Table 6 (a) significantly increases the provision for arrears and the overall budget balance to 6.1 billion Ghc and 21.8 billion Ghc, respectively—

– assuming that the central government takes over the crystallized contingent liabilities of the public enterprise; and

– in principle, expenses increase if they are paid from receipts (withdrawals) or from previous loans – and withdrawals are used to amortize and pay interest.

Alternatively, crystallized energy liabilities will increase ‘one-off spending’ but not an item in the annex memoranda (the current treatment of financial sector bailout costs) – given its unique nature and huge amount (5 million Ghc) .

Exceptional expenses return to zero (0)

An article from the 2019 mid-year review memorandum, compared to the 2019 budget, shows that the former reduces the costs of rescuing the financial sector to zero (0).

Table 6 (b): Mid-year review 2019 (Supplementary budget and allocation)

Table 6 (c) or Table 4 of the MTEF shows that the 2019 budget provided for a provision for financial sector costs of 3.1 billion Ghz.

Table 6 (c): Memorandum items indicating exceptional expenditure

Revised budget balance and allocation

Table 7 (a) restores the provision for exceptional financial charges from zero (0) to 3.1 billion Ghc, but leaves the arrears of the energy sector unchanged in Table 6 (a).

Table 7 (a): Revised 2019 Mid-Year Review (Supplementary Budget and Allocation)

Here are some of the results of not treating arrears as amortization to improve budget performance, and not through the practice of offsets:

– the budget balance including arrears but not bank rescue costs increases to 6.3% while the all-in (arrears and exceptional charges) amounts to 7.2%; and

– financing increases by the same margin after addition of arrears and exceptional charges.

Finally, Table 7 (b) uses revisions to bailout costs, arrears and exceptional items to show a revised supplementary budget and appropriations to inform a revised 2019 budget. They do not deal with the adequacy of the arrangements made.

Table 7 (b): Revised 2019 Mid-Year Review (Supplementary Budget and Allocation)

Tax accounting – possibility of off-budget processing

Public financial management (PFM) reforms are based on modules of the Ghana Integrated Financial Management Information System (GIFMIS). The key elements for achieving good macro-budget results are the electronic entry, processing and reporting of data in budget and financial accounting modules, classification systems and the chart of accounts.

An effective GIFMIS process means that all MDAs and MMDAs must process their data to comply with the rules that underpin public accounts and budget tables. The distortions in these articles suggest that MPF has not yet developed the Accounts Payable module sufficiently to capture arrears and exceptionals and minimize variances. Therefore, it is important to investigate the likely existence of parallel off-budget systems and processes.


The amortization approach appears to perpetuate the explicit and subtle “offsets” of arrears in another form. It should be noted that the overall balances (commitment and cash) and financing remain constant despite increases in income, expenditure and arrears which feed the Supplementary Budget and budgetary appropriations, inappropriately in several cases.

The methods of the mid-year review (appendices 11 and 12) do not follow conventional tax accounting rules. They are inconsistent with accrual or accrual accounting rules under International Public Sector Accounting Standards (IPSAS) that Ghana adopted in 2015, under the auspices of the Institute of Chartered Accountants, Ghana (ICAG) . ICAG is the legal authority for national accounting standards in Ghana and its improved rules will encourage best practices for the Ghana Integrated Financial Management Information System (GIFMIS).


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