The scope of government revenues since the production of oil and gas in commercial quantities in 2010 has changed with over $2 billion in receipts. Petroleum revenues have hence; become a complementary funding source for Ghana’s Annual budgets. This development has been timely in the face of declining Donor support, due to the country’s status as a Middle Income economy. However, oil find for any economy, can only contribute to its developmental agenda to the degree of commensurate prudent expenditure.
Petroleum revenues, when allocated to productive areas and spent efficiently, have the potential to accelerate a country’s economic growth and development. With this in mind, Ghana’s Parliament passed the Petroleum Revenue Management Act (PRMA) in 2011 to govern the management of petroleum revenues.
- Education sector received GHS 19.6 million representing only 1.49%, out of over GHS 1.3 billion spent (2011-2013)
- Agricultural sector’s share of petroleum funds was 14.41% out of over GHS 1.8 billion disbursed (2011-2014)
- Health sector’s share represented only 0.02% of over GHS 1.8 billion disbursed (2011-2014)
- Road infrastructure share of petroleum spending was 41.2%, out of over GHS 1.3 billion spent (2011-2013)
- Significant portions of petroleum revenues must be allocated to Pro-poor sectors
Petroleum Revenue Management Act (PRMA)
The PRMA 2011 (Act 815) stipulates that a portion of petroleum revenues is transferred to the Annual Budget for financing socio-economic interventions, also referred as the Annual Budget Funding Amount (ABFA). On the distribution of ABFA, section 21 (5) of the Act 815 requires the Minister of Finance to prioritize not more than four areas, in the absence of a long term development plan. Over the last three years including 2014, the Minister prioritized:
- Expenditure and Amortization of Oil and Gas loans
- Road and other infrastructure
3. Agricultural Modernization
4. Capacity Building
To ensure that the ABFA is productively invested, the PRMA stipulated that a minimum of 70% should be devoted to capital spending. This is in line with the objective of maximizing the rate of economic development with petroleum revenues.
This report will seek to analyse the allocation and disbursement of petroleum revenues (ABFA) from 2011 to 2014 as a complementary funding source for Ghana’s Annual budgets. Specifically, the report focuses on the use of petroleum revenues in the Pro-poor sectors of Education, Health and Agriculture from 2011 to 2014. It will also examine the use of petroleum revenues for infrastructure, specifically roads. Finally, analyses of the efficiency of spending on projects/programmes in each sector are also captured in this report.
|Item||2011 (GHS)||2012 (GHS)||2013 (GHS)||2014 (GHS)|
|Expenditure & Amortisation of Loans for Oil & Gas Infrastructure||20,000,000||100,000,000||137,920,847||163,084,572|
|Road & Other Infrastructure||227,641,768||232,403,269||372,074,147||215,691,357|
|Capacity Building (including Oil & Gas)||750,000||111,959,738||20,183,359||–|
Table 1: ABFA spending on four Priority Areas (2011 – 2014) [Source: Annual Reports on Petroleum Funds (2012 – 2014); Reconciliation Report on Ghana Petroleum Holding Fund (2013 & 2014)]
The role of capital investments to achieve the policy objectives for the Education sector is critical; it is positively correlated with improving the access and quality of education. The Education sector has consistently received the highest allocation from the country’s Annual budgets. The Ghana Education Trust Fund (GETFund) is the largest contributor to capital investments, averaging 80% of total allocations over the period. Petroleum revenues constituted the third highest funding source for capital investments between 2011 and 2014.
ABFA Allocations & Expenditure
ABFA Allocations to the Education sector decreased by 50% to GHS 10 million from 2012 to 2013, but increased to GHS 103.5 million in 2014, representing a 1,035% leap from that of 2013. In 2012 and 2013, actual disbursement of GHS 10.6 million and GHS 9.1 million respectively were lesser than allocations for those two (2) years.
In 2012, ABFA funds were spent entirely on Basic Education, with the Pre School, Primary and Junior High School (JHS) levels receiving GHS1.06 million, GHS6.3 million and GHS3.2 million respectively. In 2013, ABFA funds were spent entirely on Tertiary education, which included the construction of the Teaching Hospital Administration Block at Kwame Nkrumah University of Science and Technology (KNUST).
It appears the government is merely spreading petroleum revenues across the various levels of education, without undertaking any rigorous needs assessment for each level. For instance, in the 2014 National budget, majority of petroleum revenues were allocated to Technical and Vocational Education. Basic Education, however, was allocated the least amount of petroleum funds. This begs the question of which level of our educational system require the most attention regarding capital investments. It is imperative that such an assessment is done, to guide capital investments in the future using petroleum revenues.
Cumulatively, out of over GHS 1.3 billion ABFA spending from 2011 to 2013, only GHS 19.6 representing a paltry 1.49% has been spent on the Education sector. This is woefully inadequate considering that the fact that over 90% of the sector’s budget goes into recurrent spending. It would appear that the significantly higher ABFA allocation in 2014 was meant to stem this trend; however, actual disbursement data is yet to be released by government.
Improving the country’s health infrastructure is one sure way of bridging the gap in access to health care and nutrition services between urban and rural as well as rich and poor. The Health sector budget is the second largest after the Education sector. Though Donor funding is key to the total sector budget, contributions from Government, National Health Fund and internally generated sources preponderate. However, in terms of capital investments, the sector is heavily dependent on Donor support. In 2013, Petroleum revenues represented 7.4% of total allocations to capital investments.
ABFA Allocations & Expenditure
Aside an allocation of GHS 29.9 million in 2013, there were no further allocations to the Health sector for the other three (3) years. However, there was disbursement in 2012 even though allocations were absent. The anomaly continues in 2013, as there was no disbursement despite close to GHS 30 million being allocated.
The disbursed amount for the sector was used to procure two (2) sterilization biomedical equipment for the National Cardiothoracic Centre at the Korle-bu Teaching Hospital. Spending was targeted at one health institution, and on essential equipment for the hospital, thus it could be considered as being efficient.
ABFA spending in the Health sector represents only 0.02% of over GHS 1.8 billion ABFA disbursements 2011 to 2014. This trend does not bode well for the sector considering the huge health infrastructure deficit. The quest to bridge the gap in access to health care between urban and rural as well as the rich and poor, will remain a mirage unless the government conscientiously commits substantial funds including petroleum revenues towards infrastructural development in the sector.
The goal of Agricultural modernization is to eliminate all obsolete farming practices and technologies through the introduction of inorganic fertilizers, sound education on best farming practices, and public-private partnerships whereby, among others, loans under flexible conditions could be made available for farmers to purchase state-of-art equipment to boost their yield.
Capital investments to modernize the sector are reliant on Donors, though petroleum revenues appear to contribute significantly. In 2014, petroleum revenues contributed 78% of the investments budget of the Ministry of Fisheries and Aquaculture Development.
ABFA Allocations & Expenditure
ABFA disbursement exceeded allocations in 2012 and 2014 by a variance of more than 30%. Interestingly, ABFA expenditure in 2013 was lesser than allocation by a similar variance as the other years.
Significant portions of ABFA funds for the sector have been used to partly support national programmes and projects. Some of the petroleum revenues were used to construct and/or furnish facilities in Agriculture-related institutions as well as for the construction/rehabilitation of irrigation systems. Interestingly, all the nine (9) projects/programmes that were selected in 2011 were dropped, and replaced by a new set of projects in 2012. Such inconsistent and unfocused disbursement of funds, if allowed to continue, will undermine all the efforts to bring about accelerated modernization of Agriculture as captured in sector policy frameworks.
The Agricultural sector’s share of ABFA funds was 14.41% out of over GHS 1.8 billion disbursed from 2011 to 2014. The sector’s contribution to Ghana’s Gross Domestic Product (GDP) has been declining despite the fact it employs the largest proportion of the total workforce. Ghana’s dependency on the sector for food security, employment and other needs such as foreign exchange will continue to grow. As such it is imperative that this declining trend is reversed, and one alternative measure is to increase the portion of petroleum revenues disbursed to the sector for capital investments.
INFRASTRUCTURAL DEVELOPMENT (ROADS)
Road and other infrastructure, one of the ABFA priority areas has received GHS1.1 billion (representing 68.5%) of all ABFA disbursements since 2011. The Road sector has received the lion’s share of all ABFA disbursements to this priority area (Road & other infrastructure). Of the GHS832.12 million spent on this priority area between 2011 and 2013, the Road sector received GHS544.92 million representing 65%.
Capital investments to the Road sector are largely reliant on Donor support and the Road Fund. Allocation of petroleum revenues for capital investments has been on an increasing trend over the years (2011 – 2014). In 2013 and 2014, petroleum revenues allocated were more than Government of Ghana support to the sector. This development signifies the potential of petroleum revenues to contribute to critical infrastructure for socio-economic development.
ABFA Allocations & Expenditure
Consistently, disbursement of ABFA funds has exceeded allocations over the years (2011 – 2014). In 2011, all petroleum revenues disbursed under the priority area, Road and other infrastructure, were spent on capital projects in the Road sector. From 2011 to 2013, petroleum revenues disbursed to this sector represented 65% of the total funds spent under the priority area, Road and other infrastructure.
Between 2011 to 2013, a total of GHS544.92 million has been spent on constructing, rehabilitating, upgrading, resurfacing a total of 118 roads and road related ancillary works (such as repairs to bridges, other structures and drainage works). In 2013, ABFA funds were spent on almost twice as many road projects than in 2011. This is a worrying trend as it means petroleum revenues were spread thinly across several road projects. A continuation of this spending pattern will mean that little or no real socio-economic impact as disbursement trajectory fail under any rigorous value for money analysis.
SPENDING EFFICIENCY: 2015 BUDGET STATEMENT
A critical look at the investment patterns of petroleum revenues for the sectors discussed above clearly depicts the dearth of efficient spending. Efficient investment of petroleum revenues forms the pith of the resource debate curse. Selection of projects for the deployment of ABFA have been ad-hoc and speculative. Also, the ABFA has been distributed thinly over many projects, as evinced in the Road sector. Most of these projects as a result have suffered time over-runs and cost over-runs.
In a bid to address the efficiency issue, the Minister of Finance announced in the 2014 Budget statement that “… government has decided to deploy the ABFA for the development of six projects in the medium term and, to clear pipeline infrastructure projects”(paragraph 171). This was a step in the right direction, despite the Health sector not being allocated any ABFA funds in 2014.
However, ABFA allocations in the 2015 Budget statement deviated from the 2014 script, as the Ministries, Departments and Agencies (MDAs) allocated ABFA funds increased from six (6) to ten (10). The Office of Government Machinerywas allocated GHS 142 million which was more than 300% of the GHS 43.5 million allocated to the Health sector. The worrisome aspect of this allocation (Office of Government Machinery) is that GHS 132 million out of the total amount was for recurrent expenditure (Goods and Services). It is such spending patterns that ultimately undermine the objective of the ABFA, to maximise the rate of economic development.
CONCLUSIONS & RECOMMENDATIONS
Despite the purported four (4) priority areas for ABFA funding, a critical look will reveal that all the twelve (12) areas listed in Section 21 (3) of the PRMA have benefitted from petroleum revenues. This obviously has diluted the impact and effectiveness of ABFA funds. The success stories of resource endowed nations show that petroleum revenues were extremely focused on few, critical sectors of their economies. One sore point within the ABFA priority areas is the Road and other infrastructure component. This “priority area” has provided the leeway for government to sneak in projects from several sectors to receive petroleum funds. It is hoped that the on-going review of the PRMA will correct such anomalies, to focus petroleum revenues on fewer priority areas.
If the country stands to reap any tangible socioeconomic development from petroleum revenues, then significant portions of the revenue must be allocated to Pro-poor sectors – Education, Health and Agriculture. These sectors are essential and must receive considerable funding for capital projects if the nation is to realise full benefits from the oil find.
It is about time the nation designed a long term development plan that will guide capital investments in the country. We cannot continue in this manner, without such a strategic guidepost. The entire nation will stand to lose monumentally in terms of having nothing to show after the depletion of our resources, if these haphazard spending patterns are allowed to continue.
For interviews, please email IMANI’s energy lead, Kofi Boahen at email@example.com
Ministry of Education (2012 – 2013). Education Sector Performance Report. Accra – Ghana.
Ministry of Finance (2011 – 2015). The Budget Statement and Economic Policy. Accra
Mohammed Amin Adam (2014). Three Years of Petroleum Management in Ghana. Africa Centre for Energy Policy.
Public Interest and Accountability Committee (2013). Annual Report on Management of Petroleum Revenues. Accra – Ghana.
 The agencies within this MDA include National Identification Authority, Ghana Investment Promotion Centre, National Population Council and National Security Council.
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