Government directs SOEs to cut down budgets… but economist argues move could be counterproductive

Government, in giving a glimpse of how the mid-year budget would look like, has directed all State Owned Enterprises (SOEs) to cut down their budgets to redirect the available funds into supporting government’s efforts in the fight against the COVID-19 pandemic.

Director General of the State Interests and Governance Authority (SIGA), Stephen Asamoah Boateng, disclosed that the move is part of strict measures by government to ensure that all SOEs are responsible and conduct their operation in a manner that would be of great support to the nation’s COVID-19 fight.

“The broader picture is that every state entity has to revise their budget; that is a directive given by the President. There is no percentage slash across board directive. It should be dealt with on a case by case basis by all the state entities because some are not doing that bad, but generally, across board there is an expectation of about 25-30 percent drop in budgets,” Mr. Asamoah Boateng told Asaase Radio’s Nana Oye Ankrah.

Citing the Ghana National Petroleum Corporation (GNPC) as an example, Mr. Asamoah Boateng said that: “All of them revised their budget. Due to the drop in oil prices GNPC has had to reverse its budget downwards; the drop has affected the whole projection of their revenue. Their CSR, which had a budget of GH¢55 million was dropped to about GH¢35 million.”

But an Economist, Samuel Ntim speaking to the B&FT in an interview said, even though the move comes with the best of intention, it will come along with some serious challenges for some SOEs who have weaned themselves off government payroll.

He explained that with a drop in productivity, most of these SOEs are using almost all their revenues to pay salaries with some already knocking on the doors of government for bailouts.

Currently, about 13 SOEs have be weaned off the government’s payroll including the Environmental Protection Agency (EPA), National Pensions Regulatory Authority (NPRA), the Driver and Vehicle Licensing Authority (DVLA) and the Energy Commission. “With this directive, many already struggling SOEs would have tighter budgets, with little or no revenue to inject into their operation to make any meaningful margin.”

The Minister of Finance Minister, Ken Ofori-Atta is expected to present the mid-year budget review and supplementary estimates for the financial year this month. The Minister is expected to use the opportunity to explain how the government intends to hold up and replenish advances it took from the contingency fund and the stabilization fund due to the COVID-19 pandemic.

In April, Parliament granted a request by government to withdraw an amount of GH¢1.2billion, from the contingency fund to finance the Coronavirus Alleviation Programme (CAP). Government also received a US$1billion rapid credit facility from the IMF, part of which is being used to provide electricity relief package for Ghanaians. The rest will go into supporting the 2020 budget.

Majority Leader in Parliament, Osei Kyei Mensah Bonsu has said that the minister will also use the opportunity to explain how the government intends to pay back the GH¢10billion it borrowed from the Bank of Ghana (BoG) to help deal with the impact of the COVID-19 pandemic.

Some of the issues the finance minister is expected to update lawmakers on include successful implementation of reforms introduced by the government in the banking sector, post-recovery plans in the education sector, health matters, maintaining fiscal discipline ahead of the December general elections, and stabilising the economy and mitigating the impact of the coronavirus on businesses.


Share this: