The Natural Resource Governance Institute (NRGI) has cautioned the government of Ghana and stakeholders in Ghana’s oil industry to be mindful of the proposals and recommendations made towards the amendment of the Petroleum Revenue Management Amendment Bill which does not address longstanding issues of concern.
According to Mark Evans, Africa Economic Analyst with Natural Resource Governance Institute, The amendment of most concern is a change that allows revisions to the “benchmark revenue” figure when the Minister of Finance deems there has been a ‘”gross over-projection or under-projection” (Amendment 7). In practice this means that the government can alter the spending and saving strategy in a given year, weakening the rules in the PRMA. From experience we know escape clauses such as these must be clearly defined and restricted in law to rare instances. The proposed amendment does not do this. While this amendment might help the government to manage the current fall in oil prices, it is a decision to ease short-term problems that poses a significant risk to the long-term integrity of the rules. If revenues come in higher than budgeted, the spirit of the PRMA was not to give some flexibility to spend the excess revenues, it was to ensure these are saved for the future. This amendment undermines that objective.
He noted that a second set of amendments aims to change the fiscal rules to ensure that savings enter the funds every quarter (Amendments 3, 4 and 9). “While some have advocated for this, the key concern is how it has been implemented. The changes fundamentally alter the implementation of the PRMA, but few outside the ministry of finance are clear on the details. In the creation of fiscal rules, there is an important tradeoff between complexity and simplicity. Simple rules often leave less ambiguity and room for discretion, and help accountability actors to ensure the government is sticking to the rules”.
He indicated that the amendments proposed in practice now introduces a process that complicates both deposits and withdrawal rules around both of Ghana’s funds and appear to create conflicts in the act. “There is a risk that these rules will create a level of ambiguity and discretion that will also ultimately undermine the PRMA. Since 2011, the PRMA was much praised across the world, including by NRGI, for its role in creating a clear and consistent strategy for saving and spending of petroleum revenues.
It is important that this be maintained. While there may be a case for a review of the framework if oil prices remain low, this should be carried out with much greater consultation than we’ve seen thus far with the amendments on the fiscal rules. The fear is that these changes are being rushed through to manage short-term problems and will ultimately undermine Ghana’s efforts at managing “resource curse” challenges”.
“It is important to also begin learning from the lessons of the PRMA and the limits of its effectiveness. It is remains very difficult to analyze spending of petroleum revenues to assuage the Ghanaian public’s fears that the money is being poorly spent. Of equal concern is that the gains some areas of government spending have had from petroleum revenues have been offset by changes in the rest of the budget.
Over-indebtedness is also a well-known part of the “resource-curse” story. In Ghana the extent we ascribe this to oil or to election-year profligacy will continue to be debated. Nevertheless, over-indebtedness has undermined Ghana’s economic prospects and harmed the implementation of the PRMA”.
“How to avoid this in the future is something many will be thinking about. Many countries have struggled to transform their petroleum wealth into meaningful development outcomes. While the passing of the PRMA was an important step in confronting this challenge, it is by no means a sufficient guarantee. This highlights the importance of continuing to learn from these challenges. The Natural Resource Governance Institute will be supporting these discussions over coming months”.
It notes that the coming years would be important for the governance of Ghana’s natural resource revenues as the government continue to shape its response to a combination of overwhelming debt problems and the fall in oil prices.
“These decisions could easily undermine the integrity of Ghana’s strategy for managing common “resource-curse” problems—a strategy embodied by the Petroleum Revenue Management Act (PRMA). Currently before parliament are amendments to this act. Many of the amendments are important and reflect the government’s efforts to deal with longstanding problems; however there are some areas for concern.