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Business News of Tuesday, 25 October 2016

Source: Graphic.com.gh

Gov't justifies GHC1.2 billion capex without road arrears

The Minister of Finance, Mr Seth Terkper, has defended government’s decision to allocate GH¢1.2 billion for capital expenditure without making any provision for road arrears in the first quarter of 2017.

He explained that it was not appropriate for the government to make provision for a significant capital expenditure such as road construction in the budget for January to March next year.

Mr Terpker said the government had resorted to accrual accounting principle which mandates it to record accounting transactions in the period in which they actually occurred, instead of the period the cash flows related to them took place.

“The reason why we had not made provision for road arrears in the budget is that we are making distinction between pipeline projects and this phenomenon is derived from our accrual accounting principle,” Mr Terkper said in response to a question on the floor of Parliament.

This, according to the minister, meant that in the preparation of the budget, the country’s budget was shifting from cash flow to accrual accounting concept.

“Mr Speaker, we have a contract data base in which we track contracts that have been awarded and are in the pipeline. So the definition of arrears means that the certificate that had accumulated which has not been paid for beside the cash flow,”he said.

He emphasised that the country had a cash flow which had been embedded and would be paid at the beginning or the end of the year depending on the balance involved.

The practice where the government accumulates newer certificates but would not be able to pay, he explained, informed the decision not to make provision for road financing.

Mr Terkper indicated that the government had decided to finance road construction through a long-term borrowing approach.

“This is because it is not strategic to put capital expenditure as significant as road financing on the budget and think that you will be able to finance it,whiles you can borrow on a long term to finance it,” he said.

Minority concern

The minority recently accused the government of spending GH¢598.6 million from the Consolidated Fund and a further GH¢407.3 million from the Road Fund on road projects within the first seven months of this year but still owes contractors GH¢184.6 million in addition to an outstanding road project bill of GH¢501.2 million.

They contended that instead of funds from the Road Fund being used to finance road projects, they were rather being used to finance heavy projects that do not come under road construction, creating a funding gap of 50 per cent.

The Road Fund is sustained from fuel levies, vehicle registration fees, road user fees, road or bridge tolls, ferry tolls and international transit fees.

With the passage of the Energy Sector Levy Bill in December, 2015, as well as the over 1,000 per cent increment in road tolls, the fund is expected to accrue GH¢1.2 billion by the end of December, this year.

Gov't making provision to pay arrears

Mr Terkper explained that one of the reasons behind the country’s debt increase in recent times was because of the new model for the financing, the construction of roads.

He stressed that the government was determined to bring to an end the unresolved issues with regard to the payment of road arrears in the country.

But he indicated that the government was making other provision to pay 2016 arrears owed contractors of all government projects.

He also said the country was presently witnessing a declining debt ratio against the background of a sluggish growth.

Parliament approve

Meanwhile, Parliament has approved GH¢10.99 billion to finance critical government expenditure in the first quarter of 2017.

The provision is to cater for estimates of the first quarter expenditure on essential and other statutory payments.

The expenditure categories cover compensation of employees, goods and services, capital expenditure, interest payment, grants to other government units, non-road arrears, tax refunds and amortisation.