Abstract
Selected Issues Paper
A Public Sector Balance SHeet for Ghana1
“The management of public funds, assets and liabilities, including natural resources, and fiscal risks in the country shall be conducted in a prudent way, with a view to maintaining fiscal sustainability” (PFM Act, 2016, Fiscal Policy Principle).”
A. Introduction
1. Public sector balance sheets can improve fiscal policies and economic growth. A public sector balance sheet (PSBS) displays in one document the assets and liabilities of public sector institutions. This may encourage better management of public sector assets and induce earlier action to address fiscal vulnerabilities and risks, particularly those of public corporations. PSBSs can also improve fiscal governance and transparency. Greater certainty over the public sector’s financial situation and less volatility in fiscal outcomes due to preemptive action to reduce fiscal vulnerabilities can lead to lower sovereign interest rates and higher growth. Better management of public sector assets can also increase fiscal revenues, providing more resources for priority investment in schools, roads, and hospitals.
2. The authorities are taking steps to develop a broader picture of Ghana’s public finances. The 2016 Public Financial Management (PFM) Act calls for the prudent management of public funds, assets, and liabilities (GoG 2016). To operationalize this principle, the PFM regulations require the Controller and Account General (CAGD) to prepare a balance sheet showing the consolidated assets and liabilities of all public funds for the 2020 fiscal year (GoG 2019a). This will broaden the scope of the current balance sheet of the consolidated fund (central government budgetary unit) to include the assets and liabilities of internally generated funds (e.g., hospitals and universities), statutory funds, and donor funds. Looking beyond the central government, the PFM regulations also require public corporations to submit financial reports to the relevant public authorities, including annual audited financial statements. Moreover, the Ministry of Finance has begun compiling and publishing information on public corporation financial performance in an annual State Ownership report.
3. With these aspects in mind, IMF staff has created public sector balance sheet (PSBS) for Ghana. The PSBS includes the consolidated fund, the social security fund, public non-financial and financial corporations (state-owned commercial and development banks and the Bank of Ghana). The public sector is smaller than that of peers (Kenya, Tanzania, Uganda), with total assets of 67 percent of GDP in 2017, on a consolidated basis, compared to an average of 99 percent of GDP for peers. Estimated central government fixed assets are exceptionally small, perhaps reflecting an undervaluation of infrastructure assets. Natural resources account for a fourth of total assets. Financial and nonfinancial public corporation hold 90 percent of public sector fixed assets. On the liability side, total public sector liabilities were 88 percent of GDP in 2017, compared to central government gross debt of 57 percent of GDP. Public corporations’ liabilities account for most of the difference. The difference between assets and liabilities left Ghana’s public sector static net worth at negative 21 percent of GDP, somewhat lower than that of peers. A number of fiscal policies undertaken in 2018 and early 2019 likely have had a further material impact on the magnitude and allocation of the public assets and liabilities across institutions (e.g., recognition of losses on liquidity support to commercial banks by the central bank reduced the central bank’s equity, lowering the public sector’s net worth).
4. The paper is organized as follows. Section B reviews the strengths and weaknesses of public sector balance sheets and highlights some benefits to Ghana of developing one. The information sources and the methodology for creating the PSBS for Ghana are presented in Section C. Section D provides an overview of Ghana’s 2017 PSBS and its components. Section E identifies some caveats. Section F discusses select policies undertaken in 2018 and 2019 through the lens of a PSBS. Section G concludes with some recommendations for improving the quality and value of Ghana’s PSBS.
B. Public Sector Balance Sheet
5. The government’s fiscal analysis and policy have a very narrow focus in Ghana. Fiscal statistics and analysis concentrate on the consolidated fund, which is the central government budgetary unit and a subset of the central government (Red cell in Figure 1). This leaves out other elements of the central government such as extrabudgetary and social security funds. Fiscal statistics also fall well short of general government, which includes local governments, not to mention the whole public corporation sector. Moreover, fiscal policy focuses heavily on the central government budgetary unit’s deficits and debt. Therefore, public sector activity is not analyzed comprehensively. Without comprehensive coverage, the fiscal stance may not be assessed accurately, unrecorded government liabilities are more likely to surface unexpectedly, incentives exist to circumvent the fiscal accounts; and the transparency of fiscal policy is impaired (IMF, 2007).
Current Balance Sheet
Citation: IMF Staff Country Reports 2019, 368; 10.5089/9781513523385.002.A002
Current Balance Sheet
Citation: IMF Staff Country Reports 2019, 368; 10.5089/9781513523385.002.A002
Current Balance Sheet
Citation: IMF Staff Country Reports 2019, 368; 10.5089/9781513523385.002.A002
6. A public sector balance sheet (PSBS) provides a framework for comprehensive analysis of fiscal policies and risks (IMF 2018). The PSBS brings together all the accumulated assets and liabilities that the government controls—what governments own and what governments owe.2 The PSBS extends the perimeter of institutional coverage from the central or general government to the entire public sector, bringing in public corporations, including the central bank. The IMF’s Government Financial Statistics Manuals (GFSM) provide the underlying structure for the construction of the balance sheet.3
7. Ghana would benefit from developing a public sector balance sheet. Balance sheets can enhance policymakers and the public’s understanding and awareness of the public sectors financial strengths and vulnerabilities, potentially leading to better policy decisions.
A public sector balance sheet presents public financial information in one place allowing for more informed decisions about and transparency of fiscal policies. For example, public sector balance sheets highlight the value of natural resources, which in Ghana’s case are material. If managed properly, they can provide future benefits in the form of higher growth and financing. However, it is hard to make informed decisions about their use without a good idea of their values.
The size of public assets can be relevant. Ghana’s largest public corporations hold assets equivalent to 50 percent of GDP. Are these entities generating adequate returns for the central government in the form of taxes and dividends? The October 2018 Fiscal Monitor shows that better management of public assets could yield up to 3 percent of GDP in additional revenue per year for a group of mostly advanced economies (IMF 2018).
Another reason for Ghana to embrace public sector balance sheet analysis is that balance sheet strength matters for macroeconomic stability and economic growth. Countries with stronger balance sheet positions on average face shorter and shallower recessions and pay lower interest on their debt (IMF, 2018). Also, subject to appropriate safeguards, individual institutions with healthy balance sheets can leverage them to finance growth-enhancing investments. Without a public sector balance sheet, a large degree of uncertainty will exist over the strength of public finances that likely diminishes some of the benefits of having a strong balance sheet position.
Balance sheets improve fiscal risk assessments. For instance, balance sheets reveal the extent of borrowing by public corporations, including government-controlled off-budget financing vehicles, for which the government may ultimately be liable.
A final argument in favor of the public-sector balance sheet approach is that it can improve policy assessment of investment projects. The balance sheet approach shows that borrowing for consumption spending unequivocally lowers public sector wealth, while debt-financed infrastructure investment tends to have less of a negative effect as investment adds to the stock of fixed assets offsetting the increase in debt liabilities and can increase intertemporal net worth.4 For example, a debt-financed investment project increases the capital stock (asset) even though investment efficiency in Ghana (and in most countries) is less than 100 percent5 i.e., each Cedi borrowed (liability) adds less than a Cedi worth of value to the capital stock.6 Moreover, in the long run, the investment will increase public sector net worth if the return on public investment in terms of higher government revenue from higher economic growth exceeds the sum of (i) the financing costs associated with borrowing and (ii) the annual maintenance costs.
8. Balance sheet analysis comes with limitations (IMF, 2018). First, data quality can be an issue. The veracity of central and general government information will depend to some extent on the quality of the public financial management regulations and systems and adherence to them. For public corporations, the reliability of their financial information rests heavily on the implementation of sound accounting principles verified through external audits. Second, valuation can be a challenge particularly for nonfinancial assets that are not traded. Third, the public sector consists of many different entities, each facing its own constraints and risks, often requiring analysis of specific entities.
9. Recognition of assets on the government balance sheet do not eliminate the vulnerabilities associated with high public debt (IMF 2018). Assets such as roads and ports are illiquid and not available to meet rollover or deficit financing needs. Also, asset valuations such as those applied to natural resources can be highly correlated with the economic cycle – meaning their value can be at their lowest when financing needs are most pressing.
C. Methodology and Coverage for Ghana’s Public Sector Balance Sheet
10. The core of Ghana’s static public sector balance sheet are the central government assets and liabilities. The public sector balance sheet presented for Ghana is static in the sense that it reflects assets, liabilities, and net worth at a point in time. The starting point of staff’s analysis is the annual Controller and Accountant General financial statements of the consolidated account (central government budgetary unit) for 2017 (GoG 2018a). Balance sheet line items in the report were adjusted as appropriate to reflect information available elsewhere such as the Annual Debt Reports (GoG 2019b), debt of ESLA Plc, equity values reported in select public corporation financial statements, and the assets and liabilities of the public pension fund (SSNIT 2017). The adjusted consolidated accounts are here after referred to as the central government, even though extrabudgetary account information, which is typically part of the central government, is missing. Following GFSM 2014, pension obligations to private sector employees under pay-as-you-go social security schemes such as Ghana’s are not included in the central government balance sheet. Estimates of the government’s share of oil and gas and gold resources were also valued based on the methodology developed in the October 2018 Fiscal Monitor and added to the central government’s balance sheet.
11. The institutional coverage was expanded to cover select public corporations. The assets and liabilities of nine of the largest non-financial public corporations were incorporated into Ghana’s public sector balance sheet.7 These public corporations comprise 74 percent of the total unconsolidated assets and 87 percent of the total liabilities reported for non-financial public corporations in the 2017 State Ownership Report. Financial public corporations encompass the Bank of Ghana and the large commercial deposit taking institutions in which the government exercised control. These were Ghana Commercial Bank (GCB), National Investment Bank (NIB) and Agriculture Development Bank (ADB) in 2017 (Table 1).8 Figure 2 below shows the institutions, highlighted in red, included in the static PSBS as well as the public sector institutions not included, in blue, due to lack of data. Balance sheet information on the public corporations was drawn from financial reports and statements of each entity, converted into the GFS framework.
Ghana: Public Sector Balance Sheet—Institutional Coverage
Ghana: Public Sector Balance Sheet—Institutional Coverage
 |
Ghana: Public Sector Balance Sheet—Institutional Coverage
|
Consolidated PSBS Institutional Coverage
Citation: IMF Staff Country Reports 2019, 368; 10.5089/9781513523385.002.A002
Consolidated PSBS Institutional Coverage
Citation: IMF Staff Country Reports 2019, 368; 10.5089/9781513523385.002.A002
Consolidated PSBS Institutional Coverage
Citation: IMF Staff Country Reports 2019, 368; 10.5089/9781513523385.002.A002
12. Cross holdings of assets and liabilities were netted to derive a consolidated balance sheet. The netting process aimed at capturing the largest identifiable consolidations: central bank holdings of government debt securities, government cash balances held at the central bank, public corporation claims on other public corporations and the central government, and equity holdings of the central government in public corporations. For example, estimated arrears (unaudited) among non-financial public corporations in the energy sector were GHc 6.2 billion. This amount was subtracted from both assets and liabilities of non-financial public corporations. Similarly, arrears claims of those entities on the central government units at end 2017 were GHc 5.8 billion, which was subtracted from the liabilities of the central government and the assets of the non-financial public sector.
D. Ghana’s 2017 Consolidated Public Sector Balance Sheet
13. Public sector assets were about 66 percent of GDP in 2017, lower than those of a select sample of peers (Table 2). Non-financial assets, primarily fixed assets such as roads, the electricity grid, and natural resources amounted to 38 percent of GDP. Central government fixed assets (See Annex 1 for a detailed presentation of Ghana’s PSBS), which are generally valued on a cost basis, were very low, likely reflecting an undervaluation of infrastructure (GoG 2018c). Financial assets, the value of which is more easily quantified relative to non-financial assets, were 29 percent of GDP. About half of these were on the balance sheet of financial public corporations, i.e., central government-controlled banks, after netting out bank holdings of government securities. Following GFSM conventions, the table presents the unconsolidated net worth of public corporations as zero. This is because the public corporations’ equity value is included in the total liabilities of public corporations is already reflected in central government assets. Decreases in equity of public corporations lead to a decrease in central government financial asset holdings which lead to a decrease in public sector net worth. Kenya, Tanzania, and Uganda public sector assets are 70 percent of GDP or more (Figure 3, panel A).9
Ghana: Public Sector Balance Sheet, 2017
(Percent of GDP)
Ghana: Public Sector Balance Sheet, 2017
(Percent of GDP)
| Central Government | Public corporations | Consolidated Public Sector | ||
|---|---|---|---|---|
| Non-financial | Financial | |||
| Total assets | 37.6 | 22.0 | 29.5 | 66.6 |
| Non-financial | 21.8 | 15.3 | 0.6 | 37.7 |
| of which: Natural resources | 17.6 | 0.0 | 0.0 | 17.6 |
| Financial | 15.9 | 6.7 | 28.9 | 29.0 |
| Total liabilities | 59.3 | 22.0 | 29.1 | 87.9 |
| of which : Debt securities and loans | 56.7 | 7.6 | 9.1 | 66.2 |
| Net financial worth | (43.4) | (15.3) | (0.1) | (58.9) |
| Net worth | (21.7) | 0.0 | 0.4 | (21.2) |
Ghana: Public Sector Balance Sheet, 2017
(Percent of GDP)
| Central Government | Public corporations | Consolidated Public Sector | ||
|---|---|---|---|---|
| Non-financial | Financial | |||
| Total assets | 37.6 | 22.0 | 29.5 | 66.6 |
| Non-financial | 21.8 | 15.3 | 0.6 | 37.7 |
| of which: Natural resources | 17.6 | 0.0 | 0.0 | 17.6 |
| Financial | 15.9 | 6.7 | 28.9 | 29.0 |
| Total liabilities | 59.3 | 22.0 | 29.1 | 87.9 |
| of which : Debt securities and loans | 56.7 | 7.6 | 9.1 | 66.2 |
| Net financial worth | (43.4) | (15.3) | (0.1) | (58.9) |
| Net worth | (21.7) | 0.0 | 0.4 | (21.2) |
Public Sector Assets and Liabilities
(Percent of GDP)
Citation: IMF Staff Country Reports 2019, 368; 10.5089/9781513523385.002.A002
Public Sector Assets and Liabilities
(Percent of GDP)
Citation: IMF Staff Country Reports 2019, 368; 10.5089/9781513523385.002.A002
Public Sector Assets and Liabilities
(Percent of GDP)
Citation: IMF Staff Country Reports 2019, 368; 10.5089/9781513523385.002.A002
14. Ghana’s natural resource assets comprise a fourth of public sector assets. Petroleum, gas, and gold resources account for the lion’s share of natural resource assets. The value of oil and gas assets represents the net present value of the government’s take from royalties, fees, dividends, oil entitlement, and other charges is 30 percent of the annual crude oil production discounted at 16 percent annually.10 For gold, the estimated government take is 20 percent of the value of production. See Appendix for a detailed description of the methodology for estimating the value of natural resources (see also Alves and others, forthcoming.)
15. Resource wealth can be volatile, reflecting swings in commodity prices. For example, the estimated value to the government of Ghana’s oil and gas assets doubled to over 20 percent of GDP from 2012 to 2013. This was mainly driven by the sharp increase in international oil prices rather than new discoveries of oil and gas reserves (Figure 3, panel B). More generally, asset valuations are significantly more volatile than liability valuations. For example, a 20 percent increase in commodity prices would boost Ghana’s natural resource assets to 22 percent of GDP from 18 percent in the baseline. Conversely, a 20 percent reduction in prices would lower natural resource assets to 14.5 percent of GDP. Government policy should not react to asset valuation changes on a yearly basis (IMF, 2018).
16. Non-financial public corporations hold 90 percent of the reported public sector fixed assets. This reflects their dominance of the capital-intensive energy and transportation sectors. The combined assets of public electricity distribution corporation (ECG) and the public power generation corporation (VRA) were 12 percent of GDP in 2017 (Table 3). The recorded value of central government’s fixed assets was considerably smaller. Net of accumulated depreciation, the CAGD reported a value of GHc 7.5 billion in 2017 (3 percent of GDP). Roads and highways were the largest component of central government fixed assets comprising over 40 percent of the total.
Ghana: Public Corporations: Balance Sheets, December 31, 2017
(Percent of GDP)
Percent of shares held by central government. For financial public corporations, also includes ownership holdings of Bank of Ghana directly or indirectly through the Financial Investment Trust.
ADB’s initial public offering in 2017 was reversed in 2018 restoring Bank of Ghana’s previous ownership interest in ADB through the Financial Investment Trust.
Ghana: Public Corporations: Balance Sheets, December 31, 2017
(Percent of GDP)
| Ownership interest 1/ | Assets | Liabilities | Equity | |||
|---|---|---|---|---|---|---|
| Financial | ||||||
| Ghana Commercial Bank | GCB | 51 | 3.8 | 3.3 | 0.5 | |
| National Investment Bank | NIB | 95 | 1.4 | 1.4 | 0.0 | |
| Agriculture Development Bank 2/ | ADB | 93 | 1.4 | 1.2 | 0.2 | |
| Nonfinancial | ||||||
| Bulk Oil Storage and Transport Company | BOST | 100 | 0.9 | 0.7 | 0.3 | |
| Electricity Company of Ghana | ECG | 100 | 6.5 | 4.3 | 2.2 | |
| Ghana Cocoa Board | Cocobod | 100 | 2.8 | 2.7 | 0.1 | |
| Ghana Grid Company | GRIDCo | 100 | 2.1 | 1.1 | 1.0 | |
| Ghana National Gas Corporation | GNGC | 100 | 2.8 | 2.9 | -0.1 | |
| Ghana National Petroleum Corporation | GNPC | 100 | 2.1 | 1.0 | 1.1 | |
| Ghana Water Company | GWCL | 100 | 1.6 | 0.6 | 0.9 | |
| Tema Oil Refinery | TOR | 100 | 0.5 | 1.2 | -0.7 | |
| Volta River Authority | VRA | 100 | 5.4 | 3.3 | 2.1 | |
Percent of shares held by central government. For financial public corporations, also includes ownership holdings of Bank of Ghana directly or indirectly through the Financial Investment Trust.
ADB’s initial public offering in 2017 was reversed in 2018 restoring Bank of Ghana’s previous ownership interest in ADB through the Financial Investment Trust.
Ghana: Public Corporations: Balance Sheets, December 31, 2017
(Percent of GDP)
| Ownership interest 1/ | Assets | Liabilities | Equity | |||
|---|---|---|---|---|---|---|
| Financial | ||||||
| Ghana Commercial Bank | GCB | 51 | 3.8 | 3.3 | 0.5 | |
| National Investment Bank | NIB | 95 | 1.4 | 1.4 | 0.0 | |
| Agriculture Development Bank 2/ | ADB | 93 | 1.4 | 1.2 | 0.2 | |
| Nonfinancial | ||||||
| Bulk Oil Storage and Transport Company | BOST | 100 | 0.9 | 0.7 | 0.3 | |
| Electricity Company of Ghana | ECG | 100 | 6.5 | 4.3 | 2.2 | |
| Ghana Cocoa Board | Cocobod | 100 | 2.8 | 2.7 | 0.1 | |
| Ghana Grid Company | GRIDCo | 100 | 2.1 | 1.1 | 1.0 | |
| Ghana National Gas Corporation | GNGC | 100 | 2.8 | 2.9 | -0.1 | |
| Ghana National Petroleum Corporation | GNPC | 100 | 2.1 | 1.0 | 1.1 | |
| Ghana Water Company | GWCL | 100 | 1.6 | 0.6 | 0.9 | |
| Tema Oil Refinery | TOR | 100 | 0.5 | 1.2 | -0.7 | |
| Volta River Authority | VRA | 100 | 5.4 | 3.3 | 2.1 | |
Percent of shares held by central government. For financial public corporations, also includes ownership holdings of Bank of Ghana directly or indirectly through the Financial Investment Trust.
ADB’s initial public offering in 2017 was reversed in 2018 restoring Bank of Ghana’s previous ownership interest in ADB through the Financial Investment Trust.
17. Ghana’s public sector liabilities are comparable to a sample of peers. Debt securities and loans dominate public sector liabilities. Ghana’s central government debt burden has increased significantly over the past decade. From a post HIPC debt relief low of 41 percent of GDP in 2006 it grew to 57 percent of GDP in 2017. The latter includes two rounds of GDP rebasing that raised GDP. The liabilities of public corporations were also significant at 50 percent of GDP on a gross basis. Deposits at financial public corporations were about a third of the total. Netting out intra-public sector cross liabilities such as BoG holdings of central government debt and the central government’s equity stakes in public corporations’ yields consolidated public sector liabilities of 88 percent of GDP. This is similar to the public sector liabilities in Kenya, Tanzania, and Uganda.
18. The public sector’s total net and financial worth is negative. Ghana’s public sector net worth –assets less liabilities – was negative 21 percent of GDP, as in other countries such as Uganda. However, public sector net worth differs from the concept of commercial net worth in that it ignores a key asset, the ability to tax in the future. Net financial worth – financial assets less liabilities – was negative 59 percent of GDP. On the liabilities side, the government is exposed to explicit contingent liabilities in the form of guarantees, some of which have been called. The central government has guaranteed about USD 1.2 billion in debt held by public corporations. These contingent liabilities should be shown as a memorandum item to the balance sheet. There are also implicit liabilities, particularly those related to energy sector take-or-pay contracts.
19. The concept of net worth can be broadened to include an intertemporal component that incorporates future flows of revenues and expenditures. Intertemporal net worth includes the estimates of the static balance sheet, combined with the discounted future primary revenue and primary expenditure flows. Typically, the discount rate is set at the implicit interest rate on government debt. The extent to which intertemporal net worth differs from zero provides a sense of how far current policies deviate from the government’s intertemporal budget constraint, with negative numbers indicating adjustment needs (IMF, 2018). While calculation of the net present value of future primary balances is beyond the scope of this paper, adhering to the Fiscal Responsibility Law, which requires annual primary balance surpluses, implies that the intertemporal net worth may be less negative than the static values reported above.
E. Caveats
20. The public sector balance presented in this paper is by nature incomplete. Balance sheet data on internally generated funds (e.g., hospitals and universities), statutory funds, and local governments was not available to develop a general government balance sheet. Also missing are the central government’s holdings in joint ventures, and balance sheet information of smaller public corporations. Moreover, due to data availability constraints, the analysis is static. It does not present annual flows associated with balance sheet items.
21. However, the central government balance sheet is an acceptable proxy for the general government balance sheet. Statutory funds, except for the GET Fund and Ghana Infrastructure Investment Fund, are not allowed to borrow and their cash holdings are recorded on the central government’s balance sheet. In addition, local governments (Metropolitan, Municipal, and District Assemblies (MMDAs)) undertake a small share of public sector activity with aggregate resources and outlays in 2017 less than 1 percent of GDP. Central government transfers comprise more than half of MMDA funding. Under the PFM Act (921), local governments may only borrow domestically and up to a limit determined by the finance minister. Actual borrowing is reportedly very small.
F. Public Sector Balance Sheets and Fiscal Policy Analysis
22. Fiscal policy choices impact public sector net worth. At a general level, borrowing to finance primary deficits reduces public sector net worth to the extent that the deficit exceeds the net acquisition of nonfinancial assets (public investment). The authorities have announced or pursued a number of specific policies in 2018 and 2019 that impact the composition of the public sector’s assets and liabilities and the level of net worth. For example, the March 2018 reduction in electricity tariffs to below cost levels added to losses incurred by state-owned power companies which reduced their individual net worth. This led to a reduction in the government’s financial assets (e.g., specifically, equity and investment fund shares) and lowered the public sector’s net worth. The subsequent increase in electricity tariffs in 2019 will slow the losses. Table 1 summarizes the immediate effect of this and other actual or contemplated policies on net worth. The remainder of the section elaborates on the policy impact of key policy actions.
Ghana: Immediate Balance Sheet Impact of Policy Choices
Ghana: Immediate Balance Sheet Impact of Policy Choices
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Ghana: Immediate Balance Sheet Impact of Policy Choices
|
MMDAs borrow for consumption. A draft Local Public Finance bill would allow MMDA’s to borrow based on their balance sheet strength. Currently, the central government has direct control over the ability of MMDAs to borrow. If the bill becomes law and MMDA’s borrow to finance local consumption this would reduce public sector net worth, increasing fiscal risk.
Bridge bank. The central government borrowed 3.3 percent of GDP in 2018 to clean up several large banks, creating a government-owned bridge bank (CBG) in the process that took over assets of resolved banks whose depositors have been bailed out by government. The creation of CBG (a financial public corporation) will increase the assets and liabilities of the public sector. The long-run impact on public sector net worth will depend on the return received on the government’s equity injection in terms of dividend and tax payments and the possible sale of the equity stake relative to the cost of the debt financing. Staff estimate the government will inject another 1.3 percent of GDP into the system in 2019–20 to address financial weaknesses in specialized deposit institutions (SDIs). Some of the funds will be used to pay of depositors and close insolvent SDIs. The immediate and long run effect of this will be a decrease in public sector net worth.
Higher collections on oil and gas resources. The average effective tax rate (AETR) for petroleum agreements i.e., the percentage of available cashflows going to government, is roughly 55–65 percent. This translates into a percentage of the value of production of 25–35 percent, the basis for calculating natural resource wealth to the government. However, historical revenue and production figures suggest the government’s share is 20–30 percent of annual crude oil production value, as noted above. This may due in part to tax avoidance or administrative inefficiencies. By increasing the government take from natural resource production, the government could increase the NPV of its claim on the production value and its net worth.
Excess electricity take-or-pay charges. ECG (and the central government) are counterparties to several take-or-pay contracts with independent power producers. The contracts require payment for contracted volumes of electricity even if the electricity is not consumed (take-or-pay charges). When ECG expenses the charge, its equity is reduced, and its liabilities (accounts payable) increase. The reduction in equity lowers the value of the government’s investment in ECG. The actual payment of the claim by ECG or the government does not alter the public sector’s net worth.
23. Scrutiny of specific public entities financial vulnerabilities is a necessary complement to PSBS analysis. Without a separate examination of the financial condition of central or local governments or public corporation balance sheets important risks may be missed because they do not appear on the PSBS. For example, central government arrears or cross arrears among non-financial public corporations do not appear on the consolidated public sector balance sheet as they are removed (netted out) from both the central government and public corporation balance sheets during consolidation. However, independent examination of the individual entities balance sheets would draw attention to the arrears.
G. Recommendations and Conclusion
24. Ghana’s PSBS can improve fiscal policy and governance and, by extension, economic growth. The estimated PSBS for Ghana developed in this paper draws attention to the assets and obligations of the central government and Ghana’s many public corporations. The greater awareness can lead to a more wholistic approach to policy making, including better management of assets. The transparency offered by Ghana’s PSBS can serve to reduce uncertainty over the public sector’s financial position, possibly reducing the spread premium on government borrowing, despite net worth being negative. These benefits can translate into economic growth through greater fiscal space for inclusive, growth-friendly spending and investment.
25. Implementation of existing reforms would strengthen Ghana’s PSBS. Efforts to improve domestic revenue mobilization, from reducing exemptions to greater reliance on risk-based compliance system, including for extractive industries, would boost public asset values. Further progress on improving public investment management such as requiring all existing and potential projects to be registered in the investment database could increase the marginal contribution to the capital stock for each Cedi spent on public investment.
26. The PSBS approach underlines the need for reform and return to profitability of non-financial public corporations, particularly in the energy sector. Full implementation of the cabinet-approved Energy Sector Recovery Program, which prescribes measures to move the energy sector toward financial stability including the renegotiation or termination of expensive take-or-pay contracts, would improve both non-financial public corporations’ and central government finances. The authorities have also undertaken some initial steps to improve transparency and governance of non-financial public corporations, but more can be done. Better and regular financial reporting by non-financial public corporations, as required under the PFM regulations, is paramount. Setting up the State Investment Governance Authority to oversee public corporations in accordance with the recently enacted SIGA Act could lead to more efficient and financially sound public corporations.
27. The PSBS developed in this paper shows the potential for improving fiscal policy analysis and implementation in Ghana. The creation of an official PSBS will require several elements and the development of technical capacity. The first step is to implement the provisions of the PFM regulations that call for the CAGD to produce financial statements for Ghana’s public funds for the 2020 financial year. This will require the completion of the rollout of the Ghana Integrated Financial Management System (GIFMIS) to all public funds (Consolidated Fund, IGFs, Statutory Funds, Donor Funds, and any other fund.). In addition, all relevant entities must prepare and submit in a timely manner their respective financial statements to the CAGD based on a standard format provided. Moreover, continued emphasis improving SOE financial disclosure, as required in the PFM Act, remains extremely important for eventual development of a full-fledged PSBS and fiscal risk mitigation more generally.
Appendix I. Ghana’s Public Sector Balance Sheet, 2017
| Central Government | General Government | Non-Financial Public Corps | Financial Public Corps | Consolidated Public Sector | Consolidation | ||
|---|---|---|---|---|---|---|---|
| BALANCE SHEET | |||||||
| Total assets | 37.6 | 0.0 | 22.0 | 28.5 | 65.5 | -22.6 | |
| Nonfinancial assets | 21.0 | 0.0 | 15.3 | 0.6 | 36.9 | 0.0 | |
| Fixed assets | 2.9 | 0.0 | 14.5 | 0.5 | 17.9 | 0.0 | |
| Land | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |
| Mineral and energy resources | 17.6 | 0.0 | 0.0 | 0.0 | 17.6 | 0.0 | |
| Other nonfinancial assets | 0.5 | 0.0 | 0.8 | 0.1 | 1.5 | 0.0 | |
| Financial assets | 16.6 | 0.0 | 6.7 | 27.9 | 28.6 | -22.6 | |
| by instrument | |||||||
| Monetary gold and SDRs | 0.0 | 0.0 | 0.0 | 2.4 | 2.4 | 0.0 | |
| Currencyand deposits | 2.5 | 0.0 | 1.0 | 4.6 | 5.3 | -2.8 | |
| Debt securities | 0.5 | 0.0 | 0.0 | 15.3 | 8.9 | -6.9 | |
| Loans | 3.1 | 0.0 | 0.1 | 4.4 | 7.3 | -0.3 | |
| Equity and investment fund shares | 10.4 | 0.0 | 0.0 | 0.1 | 2.5 | -8.0 | |
| Other financial assets | 0.2 | 0.0 | 5.6 | 1.0 | 2.2 | -4.5 | |
| Liabilities | 59.3 | 0.0 | 22.0 | 28.4 | 87.1 | -22.6 | |
| by instrument | |||||||
| SDRs | 0.0 | 0.0 | 0.0 | 0.8 | 0.8 | 0.0 | |
| Currency and deposits | 1.9 | 0.0 | 0.0 | 16.2 | 15.3 | -2.8 | |
| Debtsecurities | 30.1 | 0.0 | 0.9 | 3.7 | 27.8 | -6.9 | |
| Loans | 26.5 | 0.0 | 6.7 | 3.2 | 36.1 | -0.3 | |
| Equity and investment fund shares | 0.0 | 0.0 | 6.9 | 1.6 | 0.5 | -8.0 | |
| Insurance, pension, and standardized guarantee schemes | 0.0 | 0.0 | 0.1 | 0.0 | 0.1 | 0.0 | |
| Financial derivatives and employee stock options | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |
| Other accounts payable | 0.7 | 0.0 | 7.4 | 2.9 | 6.5 | -4.5 | |
| NET FINANCIAL WORTH | -42.7 | 0.0 | -15.3 | -0.5 | -58.6 | 0.0 | |
| NET WORTH | -21.7 | 0.0 | 0.0 | 0.1 | -21.6 | 0.0 | |
| Central Government | General Government | Non-Financial Public Corps | Financial Public Corps | Consolidated Public Sector | Consolidation | ||
|---|---|---|---|---|---|---|---|
| BALANCE SHEET | |||||||
| Total assets | 37.6 | 0.0 | 22.0 | 28.5 | 65.5 | -22.6 | |
| Nonfinancial assets | 21.0 | 0.0 | 15.3 | 0.6 | 36.9 | 0.0 | |
| Fixed assets | 2.9 | 0.0 | 14.5 | 0.5 | 17.9 | 0.0 | |
| Land | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |
| Mineral and energy resources | 17.6 | 0.0 | 0.0 | 0.0 | 17.6 | 0.0 | |
| Other nonfinancial assets | 0.5 | 0.0 | 0.8 | 0.1 | 1.5 | 0.0 | |
| Financial assets | 16.6 | 0.0 | 6.7 | 27.9 | 28.6 | -22.6 | |
| by instrument | |||||||
| Monetary gold and SDRs | 0.0 | 0.0 | 0.0 | 2.4 | 2.4 | 0.0 | |
| Currencyand deposits | 2.5 | 0.0 | 1.0 | 4.6 | 5.3 | -2.8 | |
| Debt securities | 0.5 | 0.0 | 0.0 | 15.3 | 8.9 | -6.9 | |
| Loans | 3.1 | 0.0 | 0.1 | 4.4 | 7.3 | -0.3 | |
| Equity and investment fund shares | 10.4 | 0.0 | 0.0 | 0.1 | 2.5 | -8.0 | |
| Other financial assets | 0.2 | 0.0 | 5.6 | 1.0 | 2.2 | -4.5 | |
| Liabilities | 59.3 | 0.0 | 22.0 | 28.4 | 87.1 | -22.6 | |
| by instrument | |||||||
| SDRs | 0.0 | 0.0 | 0.0 | 0.8 | 0.8 | 0.0 | |
| Currency and deposits | 1.9 | 0.0 | 0.0 | 16.2 | 15.3 | -2.8 | |
| Debtsecurities | 30.1 | 0.0 | 0.9 | 3.7 | 27.8 | -6.9 | |
| Loans | 26.5 | 0.0 | 6.7 | 3.2 | 36.1 | -0.3 | |
| Equity and investment fund shares | 0.0 | 0.0 | 6.9 | 1.6 | 0.5 | -8.0 | |
| Insurance, pension, and standardized guarantee schemes | 0.0 | 0.0 | 0.1 | 0.0 | 0.1 | 0.0 | |
| Financial derivatives and employee stock options | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |
| Other accounts payable | 0.7 | 0.0 | 7.4 | 2.9 | 6.5 | -4.5 | |
| NET FINANCIAL WORTH | -42.7 | 0.0 | -15.3 | -0.5 | -58.6 | 0.0 | |
| NET WORTH | -21.7 | 0.0 | 0.0 | 0.1 | -21.6 | 0.0 | |
Appendix II. Mineral and Energy Resources: Methodology of Calculation
1. The GFSM 2014 valuation guidelines were applied to estimate values of Ghana’s energy and gold resources. The estimates correspond to the expected pre-tax cash flows resulting from their commercial exploitation. Sources and methods for these estimates differ by type of commodity, and the choice of estimation method was largely determined by the availability of source data.
2. The value of stocks of oil and gas were estimated using the following data sources: (1.1) production over the lifetime of the asset, from the Rystad database (Rystad Energy 2019); (1.2) prices (in US$) from WEO forecasts available at the end of the reference year; (1.3) costs of production (in US$), from the Rystad database; and (1.4) exchange rates, from WEO forecasts available at the end of the reference year.
3. Sources 1.1, 1.2, and 1.3 were used to calculate future US$ cash flows over an 85-year horizon. These US$ cash flows were converted to domestic currency using WEO exchange rate forecasts (source 1.4). The net present value of the domestic currency cash flows was calculated using a discount rate equivalent to the projected average (2019–24) long-term (10-year) government bond yields in WEO plus a risk factor of three percent.
4. The value of the stock of gold was estimated using the following data sources: (2.1) estimates (in constant 2014 US$ prices), from the World Bank’s “The Changing Wealth of Nations 2018” report (Lange and others 2018); (2.2) United States Geological Survey data on 2017 reserves and 2014–17 production; (2.3) prices (in US$) from WEO commodity prices for 2000–17; (2.4) exchange rates, from the current vintage of WEO exchange rates.
5. Estimates for 2015–2017 are based on the changes in reserves in those years (source 2.2). The obtained estimates based on the constant 2014 US$ prices were converted to current US$ prices using the price index obtained through WEO commodity prices (source 2.3), and subsequently converted to domestic currency using WEO exchange rates (source 2.4).
References
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Bank of Ghana. 2019. Annual Report 2018. Republic of Ghana.
Government of Ghana (GoG). 2016. Public Financial Management Act, 2016 (Act 921), Republic of Ghana.
Government of Ghana (GoG). 2018a. Annual Report and Financial Statements of the Public Accounts on the Consolidated Fund of the Republic of Ghana for the year ended, 31st Dec. 2017. Republic of Ghana.
Government of Ghana (GoG). 2018b. Public Expenditure and Financial Accountability (PEFA) assessment report. Republic of Ghana.
Government of Ghana (GoG). 2018c. Government of Ghana Accounting Manual for Covered Entities, issued by the Controller and Accountant General, Republic of Ghana.
Government of Ghana (GoG). 2019a, Public Financial Management Regulations (L.I. 2378), Republic of Ghana.
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International Monetary Fund. 2015. “Making Public Investment More Efficient.” IMF Policy Paper. International Monetary Fund, Washington, DC.
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El Rayess, M., A. Halstead, J. Harris, J. Ralyea, A.F. Tieman. 2019. “Indonesia’s Public Wealth: A Balance Sheet Approach to Fiscal Policy Analysis.” IMF Working Paper, International Monetary Fund, Washington, DC.
Social Security and National Insurance Trust (SSNIT). 2017. SSNIT Annual Report 2016. Republic of Ghana.
U.S. Government. 2019. “Mineral Commodity Summaries 2019.” U.S. Department of the Interior, U.S. Geological Survey, Washington, DC.
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Prepared by Gomez Agou (AFR) and John Ralyea (FAD).
Ghana’s Public Financial Management regulations (2019) define an asset as “a resource with economic value which a covered entity owns or controls with the expectation that the resource will provide a future benefit.”
Ghana applies aspects of GFSM 1986 and GFSM 2001.
Public sector balances sheet can reflect intertemporal net worth by adding the net present value of future primary revenues and expenses to the static public sector balance sheet. Ghana’s intertemporal balance sheet is briefly discussed later in the paper.
PEFA gives an overall D rating to public investment management in Ghana. See Government of Ghana, Public Expenditure and Financial Accountability (PEFA) assessment report, 2018 (GoG 2018b).
The average efficiency score for low-income developing countries is 60 percent. The efficiency score provides a measure of how much output could be increased through reforms while holding constant the level of input. It reflects the distance from the efficiency frontier, which is determined by the best performer in a cross-country comparison. It combines data on the volume of economic infrastructure (length of road network, electricity production, and access to water) and social infrastructure (number of secondary teachers and hospital beds).” See Making Public Investment More Efficient. International Monetary Fund, 2015.
Ghana has 45 wholly owned public corporations. Of these, 36 are classified as commercial entities and the remaining as subvented agencies.
Assuming that the 2017 IPO of ADB, which was reversed in 2018, did not take place. Also, the Financial Investment Trust, which held shares in ADB on behalf of the Bank of Ghana, is controlled by the authorities.
The use of a different methodology to calculate the value of non-petroleum natural resources for Ghana accounts for some of the lower asset and net worth values. For Ghana, the value of gold reserves reflected on the balance sheet assumes the government only receives a portion (20 percent) of the estimated reserve value, based on estimates of actual collection rates, whereas the value for non-petroleum natural resources for the comparator countries’ balance sheets (Kenya, Tanzania, Uganda) reflects the full estimated reserve value. If the full estimated gold reserve value in Ghana were recorded its public sector balance sheet, Ghana’s assets and net worth would be positive. See Annex II for a description of the methodology used for Ghana.
The valuations are highly sensitive to estimates of the discount rate and government’s take of the production value. Following the methodology applied in the October 2018 Fiscal Monitor, the discount rate reflects the projected average yield on 10-year Ghanaian bonds (2019–24) reported in WEO plus 3 percentage points.
