Gov’t withdraws subvention to 8 agencies; Ghana Water, ECG cited

Business News of Tuesday, 13 January 2015

Source: Graphic Online

Seth Terkper Minister Finance

The government is set to wean off eight subvented agencies as part of plans to trim down the wage bill, highly placed sources at the Ministry of Finance (MoF) have told the GRAPHIC BUSINESS.

The sources said the government was hoping to save between GH¢20 million and GH¢25 million when the policy goes live this year. Implementation will be done in phases, spread over three years.

According to the sources, a committee is currently working on modalities for the weaning off. It would include examining the financial performance of the agencies in the last three years and their medium term projections, to ensure that the projections were achievable.

However, the Fair Wages and Salaries Commission (FWSC) and the Ministry of Finance, which are leading the implementation proces, have declined to name agencies. But GRAPHIC BUSINESS checks has revealed that the list will certianly include the Ghana Water Company Ltd and the Electricity Company of Ghana.

“It will be better we don’t mention the names since we are not restricting ourselves to any particular organisation per se, because we are also in talks widely with other organisations who are actually willing to be weaned off government subvention,” the Chief Executive of FWSC, Mr George Smith-Graham, explained.

The agencies are being guided off the national budget to enable them to clean up their balance sheets, which would enable them to source commercial financing from the market, on the strength of balance sheets.

The government is burnt on making the autonomy of state agencies a standing policy going forward. The move is also part of efforts by the government to rationalise expenditure and lesson the debt profile of the economy.

“This is the policy we are pursuing. If they need to polish up those balance sheets to be able to go to the market, the last thing you would want to do is to create the impression that because they have been on subvention they cannot succeed,” a source at the MoF said.

“I believe that once we have the strategic plans, action plans, or implementation plans, it should be possible for us to ease whatever tension or uneasiness that the agencies may have,” Mr Smith-Graham said.

This could mark a departure from the past where state agencies were weaned off government subvention without being capitalised or given startegic direction.

This time round, the MoF has given the assurance that the affected agencies will be capitalised properly to enable them to stand on their feet.

In an earlier interview, Mr Smith-Graham, explained though almost all the institutions were ready to go off government subvention, it would not be possible for all to comply from the beginning of 2015.

“Some may need a year and some a maximum of about two years to gradually get themselves off government’s subvention. So we are working as a team to ensure that we can get those which want to go immediately to do so,” he stated.

According to Mr Smith-Graham, the exercise was basically to ensure that organisations operated more effectively and in a more business-like manner in order to become sustainable and profitable.

“The whole idea is to make sure that we have some institutions that have the capacity to be on their own when they are weaned off. It will also help in reducing the burden on the government with regard to wage bill, and even other capital items that government still support those organisations in terms of the budget,” he said.

He explained that the exercise would reduce government’s expenditure since the agencies would have to generate their own revenue and become financially independent.

“Subvention to the agencies can only be burden on government or not depending on how you look at it. If you look at it in a way that the same government would have to find the money to pay it would come as revenue, but it would also register as expenditure. But we prefer to do it this way because it gives the true and accurate expenditure of everything,” the MoF source explained.

“We would expect that they would have a strategic plan which would have a clearly stated action and implementation plan,” Mr Smith-Graham said.

As a first step, the committee would alert government about the readiness of the agencies and get experts to put together a strategic plan, an action plan and implementation plan for the agencies.

Under Labour Administration Programme, the budget states that the FWSC developed an instrument on the new Public Service-Wide Performance Management System to facilitate its implementation.

This enjoins employers to pay for work done and compensate for increases in productivity of employees. In line with Section 168(2) and (4) of the Labour Act of 2003, Act 651, the government will henceforth pay only for work done.

This year, the Commission is expected to establish a Public Service-Wide Performance Management System with effective rewards and sanction mechanisms that will ensure high productivity in the public services.

The 2014 Budget stated that 12 subvented agencies had been identified to be weaned-off government subvention.

The budget proposed that measures and modalities would be established to assist the identified institutions to be weaned-off government payroll. This exercise will continue in the medium term until all such institutions are weaned off.

Expenditure on Wages and Salaries between January to September 2013 totalled GH¢5.88 billion, 5.5 per cent higher than the budget target of GH¢5.57 billion and 19.4 per cent higher than the outturn for the same period in 2012.

In addition, an amount of GH¢846.3 million was spent on the clearance of wage arrears. Expenditure on wages and salaries alone was equivalent to 66.3 per cent of non-oil tax revenue (excluding exemptions) and 62.3 per cent of tax revenue (excluding exemptions).

Including the wage arrears paid during the period, expenditure on wages was 75.8 per cent of non-oil tax revenue (excluding exemptions) and 71.3 per cent of tax revenue (excluding exemptions).

For 2014 as a whole, wages and salaries, including the provision made for the clearance of wage arrears is projected at GH¢9.57 billion, 25.8 per cent higher than the 2013 estimate.

As of June, 2014, the Sub-Committee on Sub-vented Agencies held preliminary meetings with eight out of the 12 identified Sub-vented Agencies to assess their capacities and readiness to be weaned-off Government subvention. The issues that are being considered include:

The need to amend laws that established the institutions; Irregular review of fees, levies and charges on the goods and services they provide, which is preventing them from making sufficient income/revenue, and the need to complete ongoing projects before weaning them off.