This is because the Act mandates SOEs to seek approval from the Ministry of Finance before going ahead to take new loans.

The approval is to give the ministry the opportunity to determine the risk level and ability of the borrowing institution to repay.

The Chief Economic Officer and Group Head of PFM, Ms Eva Esselba Mends, explained at a media briefing on the PFM Act that passage of the law meant that the borrowing by a local government authority, a public corporation or a SOE shall be in accordance with this Act.

She was speaking to members of the Instituteof Financial and Economic Journalists (IFEJ) and the Parliamentary Press Corps.

“Borrowing by local government authorities subject to subsection 2 and without limiting section 73, a local government authority may borrow funds only from within the country, and up to the limit determined by the Minister in consultation with the Minister responsible for Local Government, and consistent with the medium term debt strategy and annual borrowing and recovery plan,” she said.

She added that a local government authority shall obtain prior written approval of the Minister for the issuance of debt securities to the public or borrowing of an amount above the limit determined by the Minister.

According to her, a local government authority, public corporation or state-owned enterprise is liable for the debt and other obligations of that local government authority, public corporation or state-owned enterprise without recourse to Government, unless otherwise explicitly guaranteed by Government in accordance with this Act.

New reporting requirements

Under the new Act, a local government authority shall, not later than 10 working days from the date of signing a loan agreement, issuance of a debt security or obtaining an overdraft, submit to the Minister a record of the transaction.

“A local government authority shall submit to the Minister annually and upon request data on the total outstanding debt of that local government authority and any other information that the Minister may specify,” she said.

She added that the Public Debt Management Office shall keep, in a timely manner and in an appropriate database, comprehensive and accurate records of outstanding local government debts.

PFM Act

The Public Financial Management (PFM) Act was passed into law by Parliament on August 3, 2016. It replaces the Financial Administration Act (FAA) of 2003 and its Amendments and the Loans Act of 1970.

The Minister of Finance, Mr Seth Terkper said the PFM Act also makes provision for new policy measures regarding borrowing and debt management among others.

He said the passage of the Act was part of efforts to address the persistent structural weakness in fiscal formulation especially relating to commitment control and contracts to bring effective fiscal discipline to the management of public resources.

The Acting Chief Director of the Ministry of Finance, Mr Patrick Nomo said the passage of the new law is expected to provide government with the opportunity to codify some good practices introduced and evolved as part of the PFM Reform Implementation.

“In addition, the Act will underpin Ghana’s ongoing reforms designed to address persistent weaknesses and promote fiscal discipline, transparency and accountability. It will help improve credibility of the budget, the predictability during budget execution, strengthen expenditure controls and reduce cash rationing, all of which contribute to improving the overall financial management of the public sector,” he said.   

He added that the media briefing was expected to help communicate and publicise the passage of the Bill into an Act for key PFM stakeholders.

“In addition, it will provide key highlights and the far reaching implications with regard to the sanctions as covered in the Act on the use of public funds among others,” he said.