“It is also encouraging to note that the energy of citizens and businesses are united to support efforts by government to provide resource to contain COVID-19. However, the challenges provide valuable lessons to ensure that Ghana lives sustainably to address unforeseen fiscal and non-fiscal challenges,” the energy think-tank said.

Reacting to the Finance Minister’s measures to reduce the impact of COVID-19 on the economy, when he appeared before Parliament on the March 30, 2020, the Executive Director of ACEP, Mr Ben Boakye, in a statement copied to the Graphic Business maintained that there were enough laws to aid that effort.

“Adjusting systemic neglect of the laws is essentially the missing link and I propose a number of measures to support sustainable planning for the future,” he said.

Recommendations

He also prevailed on the Finance Minister to recognise that the Stabilisation Fund was not a substitute for contingency spending.

“The Contingency Fund is more readily available to address urgent expenditures. This is not the same on the availability of the GSF which has to be withdrawn from investment instruments before it be utilised. Also the volatility of oil revenues is an ever-present threat to oil producers. This requires significant buffer in the GSF to smoothen the budget,” he added.

Ghana Stabilisation Fund

Mr Boakye said there was the urgent need for further rules on the Ghana Stabilisation Fund (GSF) adding that “to enable the fund to deliver on its object, consistency is required on the withdrawals and capping of the fund”.

He maintained that the past practice showed that the discretionary power to cap the GSF was too loose and rendered the fund unable to mitigate revenue shortfalls.

As a result, he called for a clear and consistent formula as a necessity, saying “ACEP maintains that the balance of the stabilisation fund at all times should be a minimum of 40 per cent of the projected oil receipt for the fiscal year.”

Regarding the Ghana National Petroleum Corporation (GNPC), he stressed the need for consistency in allocation of NET-CAPI.

“Recognising that the GNPC is a commercial entity, its cash flow volatility should be market driven. Extra discretion to cut its allocation only increases the risk premium for the corporation to borrow in an already risky oil business.

Heritage Fund

Regarding the proposal to use the country’s Heritage Fund, Mr Boakye said “touching the fund will not solve all of  problems today. The discipline to save for the future, according to him, is a difficult one but must be encouraged and sustained. Spending the heritage fund today is akin to telling citizens to go for their pension because they are faced with challenges in a COVID-19 world. The future of oil is more uncertain today than it has ever been. The fund is envisioned to provide support for the budget when Ghana is no longer receiving revenues from oil and that is an important foresight that should not be crucified today,” he said.

Meanwhile, he said there was also the need for the government to immediately implement “the cash waterfall mechanism in the power sector”.

“The plan to institutionalise this mechanism has overly delayed. This is further obstructing the flow of cash from the Electricity Company of Ghana (ECG) to players in the value chain.

In times of this economic difficulty, a transparent system is required to ensure that revenues collected are not monopolised by the distribution companies,” Mr Boakye said.

ACEP broad analysis

Prior to the minister’s statement, the ACEP had earlier recommended to African governments, particularly oil producing nations, to reexamine their fiscal projection for the year in order to account for the slumping oil price.

“It is, therefore, commendable that Ghana, like Nigeria and Algeria, has taken steps to revise expectations for the year. Certainly, the moment is an extraordinary one that requires significant recalibration of the budget to prop the economy and flatten the curve of the COVID-19 cases,” ACEP?said.

The statement highlighted fiscal challenges arising mainly from oil revenue and tax revenue from imports, both of which are under severe attack by the effects of the pandemic and the attendant low oil price.

The minister projects a revenue loss of GH¢5.6 billion, about 54 per cent of projected loss of revenue, from oil and non-oil revenue loss of GH¢2.254 billion.

Additionally, the programmed initial intervention in the health sector to contain the spread of the disease required GH¢572 million. This, in addition to GH¢1,250 million for the new Coronavirus Alleviation Programme (CAP) to support businesses and households, widens the fiscal gap for the financial year. Hence, yielding a total fiscal unplanned deficit of GH¢9.505 billion.

The oil revenue shortfall is estimated using a projected average price of $30 per barrel. This is prudently conservative to mitigate further shocks as the oil market remains unstable with declining demand at the peak of supply and raging battle for market share by Saudi Arabia and Russia. ACEP, however, maintains that oil price is likely to average $40 for the year.

The measures proposed by the Minister of Finance to realign the budget from the oil revenue perspective include the following: cutting expenditure by GH¢1,248 million; lowering the cap on the Ghana Stabilisation Fund (GSF) to cream off the excess for financing the CAP; reducing revenue allocation to Ghana National Petroleum Corporation (GNPC); perhaps the most controversial of the measures is the proposal to amend the Petroleum Revenue Management Act (PRMA) so that the Ghana Heritage Fund (GHF) can be used to support the budget.