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Reduce ABFA, Stabilization Fund to Sinking Fund – Isaac Adongo

Isaac Adongo – MP for Bolga

MP for Bolgatanga Central Constituency, Isaac Adongo, has called for a revision of the Petroleum Revenue Management Law to create a sustainable flow of foreign currency for the amortization of Eurobonds.

Deputy Member of Parliament’s Finance Committee has proposed that the Stabilization Fund and Annual Budget Funding Amount (ABFA), which are creations of the Petroleum Revenue Management Act (PRMA), 2011 (Act 859 ), be merged into the sinking fund to create a pool of stable resources to repay Eurobonds and reduce the country’s debt burden.

The Democratic National Congress (NDC) congressman and chartered accountant told an economics forum last Monday that the exam could rack up between $800 million and $1 billion in the sinking fund to meet repayment debt.

He said a strong sinking fund was urgently needed as a credible means of debt repayment to create debt sustainability and restore confidence in the capital market.

Steering dialogue

Mr Adongo was speaking at the 11th round of leadership dialogues organized by the Center for Social Justice (CSJ), an economic and socio-political think tank.

It was on the theme: Transforming Ghana’s Economy: Scapegoating, Real Causes and Hard Choices: A Member of Parliament’s Finance Committee Viewpoint.

The event was streamed live via social media platforms.

The event also included presentations from Professor John Gatsi, Dean of the University of Cape Coast Business School, Dr Priscilla Twumasi Baffuor from the University of Ghana and Ms Gladys M. Osabutey from the Ministry of Finance.

Tax challenges

Mr. Adongo said the economy was facing increasing fiscal risks, mainly due to the high proportion of tax and total revenue used to pay compensation, debt service and statutory payments.

“At the end of 2019, debt service alone consumed around 91% of total tax revenue, leaving only 9% to finance the rest of the budget.

“This means that to adequately cover the full costs of non-discretionary spending, the government has had to increase public sector debt by borrowing to pay part of the debt service, employee compensation and statutory payments.

“Goods and services and capital expenditures must be financed primarily by borrowing,” he said.

As a result, the MP said the government’s increased appetite for borrowing started to show in 2019 when debt service (interest and amortization) as a percentage of tax revenue topped 70%.

This, he said, led to the country being shut out of the international market, multiple downgrades by rating agencies and a return to the International Monetary Fund (IMF) for a bailout package.

Debt vulnerabilities

The MP said the high debt had created fiscal vulnerabilities for the economy.

“High debt service, even if covered by good tax revenue generation, will still require high levels of foreign exchange (FX) reserves to be able to pay the foreign currency obligations imposed by the high debt service component. foreign currency debt.

“This is why Ghana’s external vulnerability has been heightened by the high foreign component of public debt, low net reserve levels and strong demand for increased export earnings.

“This has led to a cycle of more currency-denominated bonds to provide artificial buffers, further worsening the debt service obligation and further poisoning the economy,” the financial expert added.

Solutions

Mr Adongo said the country needed to find lasting solutions to the growing debt burden.

One of them, he said, was the creation of a stable source of funding to repay the Eurobonds and other foreign currency-denominated debts the country has incurred.

Therefore, he recommended that the PRMA be revised to maintain the current arrangement for the Heritage Fund and abolish the ABFA and the Stabilization Fund in a unified arrangement to finance the sinking fund solely for the amortization of the Eurobond debt.

“This has the potential to generate between $800 million and $1 billion to fund Eurobond maturities.

“The establishment of the sinking fund will help reduce interest payments and the impact of foreign exchange losses on the national budget and help restore fiscal and debt sustainability and soften investor sentiment,” he said. he declared.

PRMA

The deputy member of the Finance Committee also proposed an amendment to the Public Financial Management Act 921 (PRMA) to strengthen debt management and make the use of the sinking fund a semi-annual reporting requirement with a clearly defined framework.

“This should include a forecast of all expected flows to the fund, actual revenue, scheduled maturities to be amortized for each debt and actually amortized,” Mr Adongo said.