Business News of Monday, 24 October 2016

Source: B&FT Online

Interest payments, capital expenditure gap widens

Finance Minister, Seth Terkper Finance Minister, Seth Terkper

Government has projected that for the first quarter of next year it will spend GH¢1.88 billion on interest payments, an amount which is 50 percent more than the planned expenditure on capital or infrastructural projects within the said period.

According to the expenditure estimates for the first quarter of 2017, government will commit GH¢1.25 billion on infrastructure, GH¢638 million less of what would have been invested into critical infrastructure projects such as roads, schools, hospitals among others.

This year, it is estimated that government will spend more than GH¢10.49 billion as interest payments on borrowings while an amount of GH¢6.68 billion will be put into capital expenditure.

Already, the Finance Ministry has reported that about GH¢5.9 billion has been expended on interest payments as at the end of July this year; a figure which is more than the GH¢5.84 billion it had planned for the period. 

This year, interest payment is estimated to be 33 percent more than the spending on capital projects, making interests on loans the second biggest expenditure on government’s books behind the wage bill of GH¢14 billion.

Although the 2017 estimates pertain to just the first quarter, it lends credence to the trend that interest payments are increasingly becoming a drain on government’s finances.

Interest on government’s borrowings for the first quarter of next year will consume more than 17 percent of the GH¢10.99 billion planned for expenditure – the third biggest item in government’s purse after wages and grants to other government units.

As a percentage of domestic revenue, interest payments will consume at least 22 percent of the GH¢8.54 billion to be realised from domestic taxes among other revenue sources. The domestic component of the interest payment will take up GH¢1.36 billion while the external component takes up the remaining GH¢534.82 million.

Expenditure approval

Parliament last week approved a GH¢10.9 billion request by the government to help finance what was described as a critical government expenditure in the first quarter of 2017.

The approval follows a recommendation made by the Finance Committee of Parliament.

The request made by the Finance Minister, Seth Terkper, was in line with Article 180 of the 1992 Constitution and Section 23 of the Public Financial Management Act, 2016 (Act 921).

The Finance Committee argued that government’s request was necessitated by the “tight election calendar” which made it difficult to come out with an Appropriation Act before the end of 2016.

The Finance Minister, who laid the request, explained that all the expenditure budgeted for the first quarter is for essential and statutory payments whilst all non-core expenses will be deferred to the second quarter of 2017.