Ghana Fiscal Policy: Principles & Objectives

• These study notes are based on Public Sector Accounting and Finance (Paper 2.5)

Syllabus Areas

• Overview of Public Financial Management (PFM) cycle in Ghana, accounting for 20%
• Regulatory and conceptual framework in Ghana's public sector accounting, accounting for10%
• Applying International Public Sector Accounting Standards (IPSAS) to financial transactions done by public sector entities, accounting for 20%
• Preparing financial statements for public sector entities, accounting for 20%
• Evaluating the financial positions, performances, and prospects of public sector entities, accounting for 20%
• Understand governance in the public sector, accounting for 10%

Overview of PFM cycle in Ghana

• Explain the public financial management cycle in Ghana
• This includes planning and budget preparation
• Also includes budget execution, including revenue management, expenditure control, cash management with emphasis on the treasury single account
• Also includes debt and asset management
• Also includes record keeping, accounting, and financial reporting
• Review and audit processes, including monitoring and evaluation, internal and external audit, and parliamentary oversight
• Assess the performance of public financial management systems using the public expenditure and financial accountability framework (PEFA)

Conceptual Framework for General Purpose Financial Reporting

• Explain and apply the conceptual framework for general purpose financial reporting for public sector entities
• Objectives and users of general-purpose financial reporting
• Qualitative characteristics of financial reporting in the public sector
• Characteristics of the reporting entity
• Elements of public sector financial statements
• Recognition of elements of financial statements of public sector entities
• How to measure assets/liabilities for presentation

IPSASB

• Understand the role of the International Public Sector Accounting Standards Board (IPSASB)
• Public sector financial laws and administrative rules
• The 1992 Constitution
• Public Financial Management Act 2016 (Act 921) and related regulations
• Audit Service Act 2000 (Act 584)
• Public Procurement Act 2003 (Act 663), its amendments (Act 914) and related regulations
• Internal Audit Agency Act 2003 (Act 658)
• Local Governance Act 2016, (Act 936)
• Other related public financial management enactments

Regulatory Roles

• Nature/purpose of assets and liabilities in the public sector
• Assess ethical issues in public sector accounting re functions, powers, offences, and penalties
• Economic & Organised Crime Office
• Office of the Special Prosecutor
• Public Accounts Committee
• Financial Intelligence Centre
• Demonstrate professional scepticism and judgement when reviewing ethical issues
• Explain the effect of technology on public sector accounting, relating to the GIFMIS platform

Application of IPSAS

• Explain and apply appropriate IPSASs relating to financial transactions of non-commercial public sector entities includes:
• Inventories
• Accounting policies, changes in accounting estimates, and errors
• Events after the reporting period
• Effects of changes in foreign exchange rates
• Borrowing costs
• Financial instruments; recognition, presentation, and measurement of financial assets and liabilities (excluding derivatives and hedge accounting)
• Construction contracts, leases, investment property, PP&E, intangible assets
• Service concession arrangements, public sector combinations, social benefits
• Cash flow statements
• Non-current assets held for sale and discontinued operations; measurement, transfer expenses
• Provisions, contingent liabilities and assets & related party disclosures
• Impairment of cash and non-cash-generating assets
• Revenue for exchange and non-exchange transactions
• Budget information, employee benefits, and agriculture in the financial statements

Accounting Policies

• Identify and explain accounting policies, prepare financial statements and notes for public sector entities under IPSAS includes:

• The financial reporting structure of the Government of Ghana:

• Central government (budgetary and extra-budgetary)

• Local government (Metropolitan, Municipal and District Assemblies)

• State-owned enterprises (commercial and non-commercial)

• General and Whole-of-Government

• Apply accounting policies in the presentation of accrual basis public sector financial reports

• Explain the features and application of Government Chart of Accounts

• Explain how alternative choices of revenue, asset and liability recognition as well as measurement can affect understanding public sector entity performance, position and prospects when presenting consolidated or separate entity financial statements under IPSAS

• How to prepare financial statements for:

• Central Government entities (Ministries, Departments and Agencies including key public sector entities such as health and education authorities) ;

• Local government entities (Metropolitan, Municipal and District Assemblies)

• Non-commercial state-owned enterprises in compliance with IPSAS.

• Prepare financial statements of a single entity undertaking transactions based on accounting policies under IPSAS and local regulations

• Identify controlled entities, associates or joint ventures according to IPSAS and public financial management laws

• Prepare consolidated financial statements arising for controlled entities, associates or joint ventures under IPSAS and public financial management laws

• Prepare extracts from financial statements of an entity preparing financial statements undertaking a variety of transactions based on accounting policies under IPSAS and public financial management laws

• Disclose additional information about the general government sector under IPSAS 22, disclose budget information under IPSAS 24

• Discuss sustainability reporting and ESG requirements for public sector entities

Evaluate Financial Position

• Evaluate the financial position, performance and prospects of public sector entities using financial and other information including how to:
• Identify users of public sector financial statements and their needs, including environmental, social and governance needs
• Recognize the limitations of published financial information in meeting users' needs
• Explain the scope of financial statement analysis in providing decision-useful information regarding financial position, performance and cash flow
• Prepare ratio analyses covering efficiency, solvency and liquidity (short and long term), borrowing to assets and working capital ratios
• Compare the role, strengths and weaknesses and uses of accounting ratios, key performance indicators and benchmarking exercises in the public sector
• Demonstrate the importance of exercising professional scepticism and judgement in analysing and interpreting financial information
• Perform common size statement analysis and budget analysis

Governance

• Explain the role of governance in the public sector, how it differs from corporate governance in the private sector including:
• The regulatory roles of public sector entities includes:
• Ministry of Finance, Controller and Accountant General's Department and Internal Audit Agency
• State Interest and Governance Authority and Bank of Ghana.
• Key stakeholders in a public sector organization and how their needs/expectations differ from those in the private sector
• The impact of different sources of funding on public sector governance
• Explain the importance of the seven principles of public life in public sector governance
• Explain the role of internal and external audit in public sector governance
• Compare the elements of social responsibility and sustainability in the public sector with those in the private sector
• Illustrate how public sector organisations achieve social responsibility and sustainability

PFM Cycle

• Essence of PFM
• Relationship between resource availability, service delivery and government accomplishment
• System for planning, directing and controlling financial resources for efficient public service delivery
• Procedures ensuring correct usage of public funds to meet standards

Objectives of PFM

• Aggregate fiscal discipline, Strategic allocation of resources, and Efficient service delivery to enhance government performance

PFM Phases

• Planning:
• Establishing financial objectives and priorities
• Assessment of revenue sources, expenditure needs, and fiscal policies
• Economic forecasting, revenue estimation, and setting budgetary targets
• The Public Financial Management Act (PFMA) provides measures on fiscal policy which includes: -Principles for formulation and implementation of fiscal policy: -Revenue: Ensuring sufficiency -Expenditure: Ensuring sustainable fiscal balance -Debt: Ensuring sustainability -Fiscal risk: Ensuring prudent management -Overall: Ensuring value for money

Fiscal Policy Objectives

• Macroeconomic stability within the macroeconomic and fiscal framework
• Other fiscal objectives consistent with the prime objectives
• These are key indicators to fiscal performance of government, including:
  • the non-oil primary balance
  • public debt as percentage of GDP
  • capital spending as a percentage of total expenditure
  • revenue as a percentage of gross domestic product; or wage bill as a percentage of tax revenue. -The Ministry of Finance shall review fiscal policy indicators every 5 years

Cabinet Adherence

• Subject to article 76(2) of the Constitution, Cabinet shall adhere to the fiscal strategy document when includes:
• making decisions with implications for public finances,
• determining, formulating, and implementing the government policies,
• performing any function conferred on it by the Constitution or any other enactment.

Suspension of Rules

• Suspension of fiscal targets or rules requires Cabinet approval if incidents occur for example:
• natural disaster, public health epidemic, or war
• an unanticipated severe economic shock
• Minister thinks that the implementation of any of the fiscal targets or rules would be unduly harmful to the fiscal and macroeconomic or financial stability of the country
• The Minister of Finance must provide the following regarding the: -reasons why the implementation of the fiscal rule or target would be harmful to the finances and macroeconomic or financial stability of the country; -the period within which the fiscal rule or target is to be suspended; and -a fiscal adjustment plan setting out the measures to return to a position of compliance with the fiscal rule or target within a period of not more than five years.

Budget Approval Process

• Phase involves budget estimates in alignment of economic policies
• Seeking authorisation from the executive and approval from parliament
• Relevant stakeholders involved, participate in the budgeting space and make input into the budget
• Relevant stakeholders include (PFMA, s21-8): Ministry of Finance, Bank of Ghana, Ghana Statistical Service, Civil society organisations etc.

The specific activities include

• Issuance of budget guidelines
• Preparation and submission of budget estimates
• Conduct budget hearing, Executive review and authorisation, Submission of appropriation bill to parliament
• A budget hearing involves the MOF confirming the budget’s compliance with Ministry directives, adherence to ceiling and resource constraints, and plans fitting accurate estimates.
• Budget guidelines: Set of requirements, guidelines and formats that provide direction for the budget preparation process. -The Minister issues guidelines for each financial year, subject to Cabinet approval.
• Copies circulate to each covered entity not later than the 30th of June of every year. Includes :
• economic outlook for the country & revenue forecasts
• fiscal targets in relation to the fiscal principles
• medium-term fiscal framework
• multiple year ceilings for each covered entity in line with Fiscal Strategy Document
• ceilings on the required number of staff for each covered entity and the cost of appropriation for the relevant year for the public service Includes:
• reconciliation of any change to the previous Medium Term Expenditure Framework
• selection criteria for investment projects & linking of forward recurrent expenditure estimates to investments ceilings for the preparation of the budget estimates of local government authorities
• details of expenditure under statutory funds
• alignment and co-ordination of statutory funds with fiscal objectives & targets
• other information required from a covered entity.
• Draft policies are sent for cabinet review
• The final budget is prepared and authorized by the President for submission to Parliament
• Approval from the Parliament is then required

Budget Execution and Control

• Involve the implementation of economic policies, projects, programmes and activities in the approved budget;
• Initiated by warrants and approvals issued by Minister of finance for commitment and release of funds to projects, programmes and activities;
• This requires regular reporting of the the budget Controller
• Actual results are compared and corrective actions are taken
• MOF monitors the implementation of budget
• Principal spending officers are responsible for M,E,C their respective budgets and report to the MOF through the SMs
• How efficiently cash resources are managed in the execution process is critical.
• PFMA requires Treasury Single Account (TSA)
• TSA serves as a unified structure of Government accounts to give a consolidated view of Government cash resources. includes: T,M,A
• Operational accounts of covered entities (for security deposit), Donor fund bank accounts and Third party & foreign missions bank accounts and deposits
• TSA should be managed on the Ghana Integrated Financial Management Information System (GIFMIS)

Phase 4

• Accurate record keeping, Accounting and Reporting
• Critical in the provision of reliable, credible financial information for accountability as well as monitoring/evaluation
• This involves:
  • Accurate capture of financial transactions/events like revenues, expenditures, assets, and obligations.
  • Proper accounting and reporting in communication format. To achieve best results, trained and equipped accounting staff is a requirement to the success of the (GFMIS)
    • Sector Accounting Standards (IPSAS) must be adhered to

Phase 5

• Review and Audit
• Covers internal/external audits as well as parliamentary oversight
• The objective assessment on government resource management is achieved through external audit reports
• Parliament through the Public Accounts Committee (PAC)
• The Attorney General office, in prosecuting and bringing to justice people who are found to have breached financial discipline.

Potential corruption problems to avoid

• There's the possibility the PFM is abused
• Every execution phase is corruption prone as it's abused for their own benefit
• Scrutiny and close examination should be payed attention to, to avoid corruption happening

Manifest corruption risks

• Planning : The allocation of resources according to biased criteria
• Budget Preperation: Amending the budget proposal for later abuse is possible.
• Budget execution : Distortion of public investment projects for rent-seeking
• Recording, accounting and reporting: Weak accounting and reporting

Public Financial Accountability System Using PEFA is the measurement tool

• Established for state and local level government bodies and organizations
• PEFA offers consistent & comprehensive & evidence based analysis
• Financial management system is a tool used by organizations stakeholders
• Establishes strategy, and analytical tool for conducting diagnostic assessment
• Gives government & partners analytical data to evaluate system

PEFA helps with :standard methodology, analytical and harmonize needs

• Standardization of framework
• Harmonization
• Evaluation of results
• Capacity development
• Evaluation through reliable systems
• Provides strong financial understanding in reform efforts across various development parameters

Outcomes

• Accountability-helps improve transparency
• Better management of what is coming in and going out
• Strong reliable allocation of available resources
• Budget: Budget is realistic as intended.
• Performance and financial stability can measured
• Information-Helps the transparency of government data, and accurate revenue
• Liabilities- helps to ensures money is well managed.
• Planning - Good planning is vital to achieving goals
• Strong management, appropriate records that are updated
• Independent reviews

Multiple Dimension to Indicators

Where are 2,3, and 4 dimensions for an indicator, pooling scores is required. The measurement of these indicators are required A. Dimension are the specific questions or items to ask or measure when combined a particular indicator. The dimensions of indicators are as follows:

• One dimension
• Three dimensons
• And Four dimensons
• Scoring =A scale from Poor Very good

Limitations

• Its unique, and economic is to similar countries
• Doesn't recognize and improve effectiveness
• It should work on processes rather that the results and outcomes
• it comes with complexity & high demand for intense resources
• it has Inadequate Scope

Controls COSO

• Operations follow order, laws are ethical, and everything is efficient
• All Laws & regulations are complied with by regulations

Is required to map a Financial management process

The End

Explore the principles guiding fiscal policy formulation and implementation. Understand the government's primary fiscal policy objectives and specified indicators. Learn about Ghana's Public Financial Management (PFM) cycle, expenditure control, and the Treasury Single Account (TSA).