ACEP Calls For Increased Capital Investment In Pro-Poor Sectors Using Oil Money

The Africa Centre for Energy Policy (ACEP) has emphasised that the use of petroleum revenues for capital investment must be encouraged as it does not only fulfil the requirement of Section 21(4) of the Petroleum Revenue Management Act (Act 815) but also builds the capital base of the economy to accelerate medium to long-term economic growth.

Capital spending by September 2013 was 16% of total public spending; and domestic financing of this being 33%. For 2014, projected capital spending is expected to be 17% of total public spending, 24% of which will be financed from domestic sources, says the ACEP 2014 Budget Tracking Expenditure Report of extractives resource revenues.

Particularly, the report highlights budget priorities for petroleum revenues in the education and agriculture sectors.

According to the ACEP report, generally, the allocation of petroleum revenues to pro-poor sectors in 2014 was lower than allocation to commercial projects. Of the total projected ABFA of GHS899 million, only GHS365 million was committed to pro-poor projects constituting 41%.

Education and agriculture sector were not allocated significant proportion of petroleum revenues in the 2014 budget. Of the total petroleum revenues, only GH¢155.7 million was allocated to the agriculture and education sectors constituting only 17% of the total ABFA for the year.

Therefore, only 6% and 11% were allocated to food and agriculture and education sectors respectively.

Ishmael Ackah, Head of Policy Unit, ACEP noted unless funding is increased otherwise pro-poor investments will be exposed to financial vulnerabilities thereby affecting infrastructure development.

According to him, on the distribution of ABFA, section 21(5) of the Act 815 requires the Minister of Finance to prioritize not more than four areas.

He added that over the last three years including 2014, the Minister prioritized the Expenditure and Amortization of Oil and Gas loans, Road and other infrastructure, Agricultural Modernization and Capacity Building.

However, he indicated, that priority spending of the ABFA on Expenditure and Amortization of Oil and Gas loans received GH364.6 million constituting 40.6%, Road and other infrastructure GH339.0 million representing 37.7%, Agricultural Modernization GH 136.4 million presenting 15.2% and Capacity Building received GH59.6 million constituting 6.5%.

During a presentation of the Report, Ishmael Ackah explained that although the proportion of petroleum revenues in the total budget was insignificant in nominal terms, the Government capital programme could suffer substantially without petroleum revenues.

According to him, the bulk of the budget for MDAs were committed to wages, salaries and goods and services and were mainly funded from Government of Ghana and Development partners sources.

The budget for the pro-poor sectors of education and agriculture mainly relied on donor support for investment. Donor funding is likely to scale down as a result of Ghana’s status as a middle income country.

He indicated that a well prioritized use of petroleum could therefore provide fiscal relief to neutralize the funding gap that may result from the decline in donor support.

Mr. Ackah urged that government should commit substantial portion of the petroleum revenues to finance the proposed free Senior High School programme.

He said this will ensure the development of an educated skilled workforce capable of transforming the economy in the long-term.

According to him, government should also apply petroleum revenues to expand the agriculture sector particularly by providing input, technology and marketing support to smallholder farmers.

“Efficiency of spending petroleum revenues remains a challenge as petroleum revenues were thinly distributed over many projects most of which would take much longer time to complete without regular financing,” he noted.

Adding that spending of oil revenues should be based on an investment plan guided by a long-term national development or medium term development framework.

He stated that, “this will provide consistency in the use of petroleum revenues for projects that add value to the economy on a sustainable basis.”

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