When viewed from the perspective of the three main objectives of a sound PFM system, namely aggregate fiscal discipline, strategic allocation of resources and the efficient delivery of services; Ghana does not yet score well on all key aspects of aggregate fiscal discipline. Given that this is a foundational element of sound PFM, it impacts upon the effectiveness of the other two main objectives of sound PFM. The limited top-down discipline role that the macro-fiscal framework serves does not fully facilitate the meaningful bottom-up budget participation by MDAs who submit budget requests too high above budget guideline ceilings to permit meaningful reconciliation of the top -down and bottom up budget processes. This in spite of having adopted a definite budget calendar, which accommodates policy based inputs and the use of clear budget guidelines set within pre-announced ceilings.
There is a decoupling between approved budgets and budget execution. Personnel emoluments quickly outstrip their budget ceilings as a consequence of both unrealistic Item-1 budget ceilings as well as ineffective establishment controls. The highly unpredictable budget releases and weak commitment controls lead to a high accrual of expenditure arrears and point to the inefficient delivery of services. A Medium Term Expenditure Framework was introduced as part of the PUFMARP launched in 1996, the adoption of costed sector strategies aligned with a well articulated overarching national development framework has been achieved, there are annual debt sustainability analyses carried out; and yet all of these successes have not been fully effective in strategically allocating resources in line with government policy objectives.
Revenue administration and procurement reform is showing signs of positive impact;
unreported extra budgetary activity is limited; there is good and timely public access to budgetary and fiscal information; the recording, reconciliation and reporting on debt service and the debt portfolio is strong; both internal audit and external audit have been reformed, even though in some respects it may still be described as a work in progress;
Parliament reviews both the budget proposals and actual expenditure. And yet
weaknesses in the achievement o f fiscal discipline dilute the overall impact of these achievements on the overall performance of public finance management.
There are four main factors that characterise the PFM of the central government in Ghana:
1. Transfers to sub national government remains largely embedded within the central government budget: The Districts Assemblies Common Fund (DACF), a statutory fund, and representing a little over 7% of primary expenditure, along with the HIPC transfers are the only disaggregated element of inter-governmental fiscal transfers.
Substantial personnel emolument payments, some administrative charges, counterpart fund contributions and mineral fund transfers add another 5% of primary expenditure that is transferred in a non predictable or transparent way. This has impacts on decentralization policy formulation; the budgetary performance of the MMDAs and also on such MDAs as the CAGD, Ministries of Chieftaincy Affairs and Local Government and Rural development whose budgets embed such transfers.
2. The narrow interpretation of CAGD financial reports to only reflect Consolidated Fund Transactions: This narrow interpretation of the FAA, 2003 has led to consolidated financial reports reflecting only a portion primary expenditure and excluding expenditure out of retained IGF. Further, it has meant excluding the reporting of expenditure on development partner funded projects and programmes. It has also meant that in some cases financial figures reported are offset by those amounts that are not considered strictly emanating out of the Consolidated Fund, whereas the budget documentation do not necessarily make those distinctions. The upshot of this has been a reduction in the transparency of financial reporting, a weakening of the reconciliation mechanism as it has introduced a dual expenditure reporting system for MDAs with possible opportunity for overlap. It also increases expenditure management complications with respect to having to setting up dual commitment and establishment controls to be applied separately to Consolidated Fund expenditure as distinct from retained IGF expenditure.
3. The hybrid budget classification system: The budget classification incorporates both line item and activity based budgeting. This, it appears, has required the
implementation of a dual warrant and budget release mechanism; one to address the lime item classifications (Item-1 and Item-2 carried out by the CAGD) and the activity budget classifications (Item-3 and Item-4 carried out by MoFEP).
4. The expenditure management remains manual: The Budget and Public Expenditure Management System includes a commitment control module, but has not been rolled out across all cost centres. Consequently, expenditure management including the issuance of purchase orders (commitment control), invoice verification (goods, services and works received note) and payment vouchers remain manual.
Aggregate Fiscal Discipline
With respect to aggregate fiscal discipline , Ghana’s reliable revenue estimates (PI-3) present a good starting point for achieving aggregate fiscal discipline. The single authority with stringent oversight and approval legal requirements for contracting loans stand the PFM systems in good stead to achieve fiscal discipline. Low levels of unreported extra-budgetary expenditure, good and timely public access to key fiscal information, the adherence to a fixed budget calendar, with the adoption of clear budget circulars which reflect Cabinet approved ceilings, the preparation of multiyear fiscal
forecasts, high average debt collection ratios for tax arrears, regular and timely revenue transfers to the Consolidated Fund, the recording, reconciliation and reporting of debt service and the debt portfolio, predictable budget support disbursements, timely in year budget implementation reports and annual financial reports, with effective timely external audit and parliamentary scrutiny all contribute positively to achieving aggregate fiscal discipline. Ghana cannot yet be said to have achieved this foundational step towards sound PFM.
The achievement of aggregate fiscal discipline remains elusive as a consequence of a macro-fiscal frame that remains ineffective as an instrument of top -down discipline (PI-12), a bottom budget preparation process that results in budget request that exceed ceilings by often in excess of 100% thus rendering any top-down, bottom up
reconciliation processes ineffective (PI-11). The high unpredictability and large delays in the budget releases, coupled with the ineffective establishment and commitment controls undermine the achievement of fiscal discipline (PI-16, PI-18, and PI-20). The ignoring of approved budget ceilings on domestic borrowing (see PI-1for fuller discussion) and the poor oversight of aggregate fiscal risk from SNGs contribute negatively (PI-9).
Strategic Allocation of Resources
Even though Ghana has in place a number of important steps towards achieving a budgetary process that is capable of the strategic allocation of resources in line with Government policy, the lack of achievement with respect to fiscal discipline render these less than fully effective. Ghana has adopted an activity based budgeting approach, but due to its partial implementation and the absence of functional or program alignments; there are only weak links with policy objectives. The Parliament does not review medium term fiscal framework to introduce a longer term, and so more effective approach, to policy debate. While sector strategies are largely aligned with the national development strategic framework (GPRSII), and a number of the larger ones, though not all, of the sector strategies are developed within a fiscal frame that are fully costed with recurrent cost implications taken into account; the links between the sector development plans and the budget occur only on a qualitative basis. Debt sustainability analysis (DSA) is performed on an annual basis by the MoFEP and so provides a context to develop realistic strategies within realistic debt levels. But a practice of ignoring domestic borrowing ceilings undermines the value of the DSA.
Ghana’s development objectives rely heavily upon Development Partner inputs. There important missed strategic opportunities that arise due to the lack of a close alignment of donor grants with the budget process and a broad absence of timely consistent financial reporting on project and programme achievements consolidated into the national financial reporting framework (see PI-25 and D2). The effectiveness of the central government’s success in allocating resources strategically requires timely disciplined budget releases in accordance with such strategic considerations. It also requires the incorporation of effective monitoring and evaluation to inform and continue evolving and refining
strategy. Particularly important to assessing the impact of policy objectives is the tracking of resources received by front line service delivery units such as primary schools and primary health care facilities (see PI-23).
Efficient Service Delivery
The improving procurement performance (PI-19) has a positive impact on efficient service delivery. The improved timeliness achieved in the approval of the appropriations bill by Parliament contributes significantly to achieving efficient service delivery since it provides more time for implementing the budget. However, weaknesses in aggregate fiscal discipline undermine the overall effectiveness of efficient service delivery. The weak linkages between taxpayer registration databases and other relevant government registration systems do not assure comprehensive coverage of the potential taxpayer base.
The high levels of discretionary powers of officers with respect to the legal and regulatory framework for tax revenues with respect to provisional and final tax assessments, penalty rates and waivers, export taxes impacts negative ly on efficient service delivery. The weaknesses in the establishment control leads to a high incidence of ghosts; and even though there is a system of annual payroll audits this is a matter of addressing the symptoms rather than fixing the underling cause. The high unpredictability of budget releases and weak commitment control impact negatively on the efficient use of procurement methods. It also leads to high accruals of expenditure arrears that impact negatively upon value for money. The recording, reconciliation and reporting on debt service and debt stock is strong. However, cash management is not yet strong enough to facilitate a close integration of debt and cash management so as to support a lowering of the net cost of money through participation in the overnight money markets. A greater emphasis on systemic issues with respect to internal audit (PI -21) would provide the opportunity to curb the application of inefficient procedures.