Interview: Mona Helen K Quartey
What impact does the transition to lower-middle-income country (LMIC) status have on a nation’s ability to mobilise foreign financing?
MONA HELEN K QUARTEY: Ghana became a LMIC following the rebasing of GDP in 2010. The implications for external resource mobilisation are manifold. It has led to a reduction in very soft and long-term aid inflows and attendant fiscal and balance of payments challenges. Grants and concessional financing are becoming scarce. Two of our multilateral development partners, the World Bank and the African Development Bank (AfDB), have varied the terms of credit to our disadvantage as a result of our migration from least developed country to LMIC status. For example, the World Bank has raised its lending terms to Ghana from 0.75% to 1.25%, with the repayment period reduced from 40 years to 25. The AfDB has similarly signalled its intention of changing its terms of credit. This means Ghana must rely more on its own internal resources and the capital markets for its developmental needs. Our debt management strategy has been revised to reflect this development.
Ghana has been to the eurobond market three times so far, in 2007, 2013 and 2014, raising a total of $2.75bn. To optimise these financial resources, the government is committed to rationalising expenditure by identifying projects that are potentially self-financing. Infrastructure bonds will then be issued to finance these. It is hoped that this arrangement will help bridge our funding gap for rapid infrastructure development in Ghana.
How do you see the evolution of public sector financing in infrastructure development?
QUARTEY: Ghana’s government is facing monumental challenges in infrastructure development and public service delivery, which has put constraints on the growth of the economy. Given the limited resources, the huge deficit in infrastructure cannot be met through public sector financing alone, hence the use of public-private partnerships (PPPs). The use of PPPs will still result in the creation of some fiscal commitments. As noted in the National PPP Policy, the government’s contribution to a PPP may include remuneration to the private party from government budgets, which may be fixed or partially fixed, periodic payments and contingent liabilities. Management of these kinds of long-term payment commitments, which typically last throughout a project’s lifetime, can be challenging, and the government is at risk of building significant fiscal exposure.
Four key challenges have been identified. First, long-term or contingent commitments are often not subject to affordability checks on government expenditure provided by the annual budget or medium-term planning processes, as payments occur outside the budget and planning horizon. Second, risks associated with contingent liabilities for the government must be proactively managed over the life of the project to achieve value for money. Third, uncertain payment obligations will expose the government to fiscal risk that can create budgetary uncertainty and may put public debt on an unsustainable path. Finally, uncertainty among private partners as to whether the government will be able to honour its commitments promptly can undermine the value for money created by allocating risks well.
To address these issues, an institutional framework should be established to support the financial management of obligations emanating from PPPs. The government is working on introducing a viability gap funding system that would be used for the government’s contributions to PPP projects. We must also limit the use of guarantees and institute a strong monitoring system.
The Ghana Investment Infrastructure Fund (GIIF) was initiated in the 2014 budget to ensure resource mobilisation, scaling up of infrastructure development by leveraging private sector opportunities for growth, and maintainence of debt sustainability through minimisation of direct government investment. The GIIF is key for the success of our loan recovery effort from commercial projects; the mobilisation of domestic and international resources for investment; partnership with the private sector; and reclassification of our public debt.
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