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Assessing Public Expenditure - Ghana Introduction: Ghana gets a second chance for fiscal stabilization

There are several reasons to describe The Republic of Ghana, the sovereign state of Sub-Saharan Africa, as The Rising star of Africa, African tiger or The Beacon of Hope. Ghanas per capita output is twice as big, when compared to neighboring countries, Ghana has strong attributes of democratic culture and stability, moreover - it has newer oil findings (The BBC, 2007). Ghana was affected, but it resisted a recent economic crisis because of cocoa production and gold. Ghana seeks to become the most developed country in Africa by 2030, presenting the framework for sustainable socio-economic development. Ghana has the chance to fulfill its goals or to continue the paradox of African countries, rich in resources, but poor in economic growth.

Unfortunately, Ghana is still subordinate of international assistance, raising debt and showcasing fiscal indiscipline, scoring poorly on international reports. Public finances are not well managed, and with new revenue potentials following the oil explorations, Ghana is faced with presenting a valuable strategy to resource allocation, prioritizing vital public services as a reflection of fiscal control (Broni-Bediako, 2010). If Ghana wants to benefit, it needs long-term development strategies, furthermore, sustainable legal framework for successful revenue management. It is particularly timely to review measures, track performance and expenditures of existing programs and consolidate budget reports and align performance with the governments policies. The public administration will have to confront these challenges and face the high expectations in approach to natural resources. While such objectives are relatively straightforward, their realization can be challenging (Andrews, 2010). This paper covers several financial reports, examples of patterns and advice in the upcoming financial management opportunities. Political will to introduce debt controls and deficit reduction, present opportunities to restructure administrative and funding aspects.

Public expenditure: Small mismanagement causes big problems

For international institutions such as World Bank, and several international research reports, Public Financial Management (PFM) systems of African countries, as Ghana, have not yet established the basic prerequisites for adopting policy based budgeting (World Bank, 2011). PFM seems robust but not well executed (The Republic of Ghana, Ministry of Finance, 2013). In other words, they work on paper, as in legislatives and frameworks, but not in real life - service

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delivery. Delays, short-term planning, centralization and disordered decisions cause bigger problems. Ghanaian institutions make their efforts but with feeble results (Betley et al., 2012).

In the case of Ghana, as in many African countries, problems with budget credibility, a macro-fiscal framework, predictability in reports, top-down budgetary discipline and adequate expenditure control are clearly declared (Economic Commission for Africa, 2010). According to Public Expenditure and Financial Accountability (PEFA) assessment (Quist et al., 2010), Ghana has problems with credibility of the budget, predicting and controlling neither revenue, nor expenditure. Such problems find grounds in disorganized spending and debt raising. Furthermore, those appear as a result of unrelated and disconnected budget maneuvers as there is no clear linkage or joint between different ministries, departments and agencies (MDA). The absence of such connections leads to an alarming deficiency of protocols and guides in decision-making. In alignment with such pyramidal construction of counted difficulties, weak audit scrutiny slows down rational outcomes and progress, obviously neglecting accounting records.

In short, Ghana is diagnosed with: aggregate expenditure out-turn compared to the original approved budget, aggregate revenue out-turn compared to the original approved budget, legislative scrutiny of the annual budget law, legislative scrutiny of external audit reports (Quist et al., 2010, pp 40).

The Ghanaian PEFA report seems aligned with joint evaluation commissioned by Sida, Danida and AfDB (Betley, Bird and Ghartey, 2012). As a response to such warnings Government of Ghana (GoG) published The Joint Review of Public Expenditure (World Bank, 2011). Document is addressing the stated problems but it is presented as summarizing checklist and descriptive framework rather that productive implementation strategy. Although these are good guides, such reports only indirectly appoint to the real management problems, as those are often impossible to measure.

As most African countries, Ghana has problems accomplishing basic when it comes to allocation of resources, performance budgeting and integrated financial management, but shows respect for international recommendations, being focused on Developing Partners (DP) agreement, achieving short-term agendas (Gollwitzer, 2011). Most of the framework is done at Ministry of Finance and Economic Planning (MoFEP), mainly responsible for the budget. The Controller and the Accountant Generals Department (CAGD) oversees expenditure transactions and revenue, also the Internally Generated Funds (IGF) reports are available annually (Quist et al., 2010).

As stated earlier, GoG is increasing debt and deficit, causing inflation and loosing policy credibility. Reports show that expenditure was raised above set estimates

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and states borrowings were in excess, with disrespect towards the international and internal debt, ignoring the domestic borrowings approved (World Bank, 2011). This is what happened in 2008, when elections budget was exceeded. In January 2009 GoG adopted a macro-economic stabilization program with help of Word Bank and IMF (World Bank, 2011). Credibility of budget is reasonable question. There is a big separation of budget executions and budget approvals. The PEFA report implies that Ghana made its costing based on actual consumption, rather than longer political programs and objectives. On lower levels of government, ungovernable decisions were made, spending more than planned. Ghanas unstable financial reporting and unpredictable budget executions are connected with low control of framework implementation. And while a legal and regulatory framework is clear, especially on procurements and expenditure, faulty budgeting performance is a result of unclear objectives in application. Unpredictable budget releases with no bonds in policies or long-term goals create even more displacement in fiscal discipline and reforms that are undertaken in support of developer programs. GoG in Joint Report addressed this problem claiming budgets are more policy based and aligned with strategies such as Ghana Poverty reduction strategy. However, the monitoring mechanism is still questionable. As a lack of fiscal discipline, problems whit current controls and systems formulation are clearly present (Ackah et al., 2009; Quist et al., 2010; Betleyet al., 2012).

As records show, there are no institutional arrangements to coordinate PFM activities. No appropriate sequencing or coordination is presented. Coordination problems of Ghana were addressed earlier and shift towards the stronger framework was made. Even when a controlling framework exists it seems behaviors do not respect such procedures. Ministries make 3-year plans to present objectives, but still, the country was not keeping tight enough control of its spending (World Bank, 2011). Reports on expenditure are not released in time, making it difficult to manage resources with quality. There were delays in the time the legislature has to review the budget. Such delays make other financial variables even more unpredictable. In addition, in-year amendments to the budget were not respected in many instances. Some scholars clearly state that there is no control over financial decisions when it comes to entities outside the central government, especially when they involve multiple players. GoG joint report declared accounting for and reporting on public expenditures is split between various institutions, making it difficult to get a comprehensive picture on Government spending (World Bank, 2013). With no priorities, or just 3-year reform strategies, it becomes difficult to optimize allocation between sectors and control over exceeding budget resolving in social growth and service quality. Although some records on resources are controlled and transparently presented it seems no connections to long-term goals or objectives are addressed in micro planning (The Republic of Ghana, Ministry of Finance, 2013). Public access on the budget is granted, however insights to inner control and discipline are somehow hidden. Some legal definitions of discretionary elements of legal framework are addressed

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as the cause of unpredictability and insufficient inner control, opening the questions on corruption. The revenue administration is regularly reported but with no signs of unlisted budgetary activity. Reforms in Ghana are focused mainly on recommendation executions, but with no safeguards or restrains when it comes to exceptions. Opening questions of fraud and corruption, forced Ghana to audit reports as suggested, however, no internal control leaves most of reforms paralyzed (Quist et al., 2010; Betleyet al., 2012; World Bank 2009; World Bank, 2011).

At the end, all of the issues mentioned above, are reflected in inadequate public services. The existence of an inefficient system of control and budget administration, unreported budget activities and general cross-departmental disorganization are further constraints to the progressive financial management. It seems that unmotivated senior administrative officials do not pursue budgeting beyond their office. Attempts to put control over these circumstances were more in a service of centralization, downsizing up from below budget participation (Andrews, 2010). Moreover, this weakness makes administrators rely on DPs and fiscal discipline is reflected on service delivery efficiency. Developers provided technical skills without regards to context and underlying processes of affiliated financial management. No attention to payroll costs and budget execution, especially in social sectors, undermines service delivery. Reports clearly imply that there are no connections in the passage of laws, thus implementation.

The key problem with the problems stated is that they are products of international one-dimensional, without in depth analysis (De Renzio, 2009). Firstly, execution is neglected as it is in tight relation with management on lower levels that are often not accessible by researches. Secondly, PFM stays in the center of political power (MoFEP) where most of the decision-making is made with no base-up communication, weather that is about local governments or community involvement. Most financial reports rely on such central government institutions without detailed surveys of departments and agencies. Even with such discovery, it is clear that outer agencies and departments still do not have the same principles in financial decisions and services investments. These agencies have transactions but see no accountability for results. It seems Ghana has problems in such horizontal context. The key problem is that international reports do not study the procedures of implementation, real life experience, and managing knowledge in familiar surroundings and therefore might be misleading. So, answers to Ghanas problems might be inside such practice. This proves the point of decentralization as being more difficult - it involves managing people in retrospect with regulations in lower structures, agencies and departments. Regulations need to be made and supervised (De Renzio, 2009). Lastly, higher scores in PEFA assessments can be achieved just by proclaiming new practice law or formal arrangements with no performance measurements or values, leaving the important political lessons behind. Ghanas systems bends rules and procedures to gain more aid, no to truly reform. As

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demonstrated with 2008 election budget problems, conducted reforms are not only reflections of external agencies efforts, but are often corrective to past political decisions, political games focused on and gaining public recognition rather than practical results and movement.

Finally, comprehensiveness of such reports can be applied to numerous African governments. Still, similarities in African countries development (or underdevelopment) are a possible result of unified criteria of such reports rather that countries affinitive (Gollwitzer, 2011). Moreover, lists of favorable solutions are often copy pasted, making universal how to recipes. Luckily, such practice clearly established the additional space for reforms based on local knowledge, experiences and context. Furthermore, countries differences in adaptation may be the key to prosperity. Reports from institutions are good measuring tool, however, they are more to be used as flexible guidelines rather than a list of goals. Real solutions are to be find in differences, lying between the lines of reports.

Aligning small goals as a secret to big success

Clearly, Ghana needs fiscal adjustments in order to reduce expenditures and gain control (The Republic of Ghana, Ministry of Finance, 2013). That can be reached by a combination of different approaches that are introduced by previous reports, but moreover, that are based on newly PFM practice. Oil opportunities might act as a spark to catalyze suitable reforms, and create momentum for clear and systematic changes, vital in stabilization of existing management procedures. Emphasizing set of short and measurable reforms and a thorough improvement of existing systems is essential before adaptation to newly favorable circumstances, that is, before going to more advanced reforms (Andrews, 2010). Setting institutions to manage oil revenues should not take place before establishing effective budget control systems (WordBank, 2011; Broni-Bediako, et al., 2010).

As Peterson (2011, pp 210) emphasized Schick: Recognizing, meaning understanding and respecting what exists, is the first and often most neglected step in reform. Working with what is there. Not creating new disorganized structures. Establishing control and inner procedures becomes solid ground for further reforms, connecting and aligning smaller parts, resolving smaller problems to demolish bigger ones. Going from less systematic, to more systematic system. Making studies and allowing funds to flow on the highest rate of return. It is faster, cheaper and less risky (Peterson, 2011). When improving PFM systems, countries like Ghana often present huge long goals rather than taking step-by-step processes. Making reforms sequenced makes directives and stuff easier to set with priorities, and making budget processes in time (Economic Commission for Africa, 2010).

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Problems listed above are undoubtedly connected, so focus on short-term goals should help to achieve prosperity in mid and low term framework. Midterms and longer-term frameworks in policies are a good thing, but defining step by step processes, placing enough emphasis on sequencing and reform roll out scheduling with accomplishing smaller goals seem logically more plausible than exercising passage of big moves with constant fails. To help such processes IGF reports should be used on a shorter-term basis, since reconciliation of the retained IGF is still done on yearly bases (Quist et al, 2010).

Ghana depends on DP and foreign aid. The economy is not resilient, so as external support weakens Ghana cannot support domestic investments. In such circumstances, Ghana is often willing to change its systems. In such collaborations DP should suggest projections on GoG budget timetable rather than their own agendas. Government can request support, which is very different from foreign aid inviting themselves, which is often the case. Turns to existing sources rather than external endorsements are recommended. Focus from technicalities should be switched to local problems and specific backgrounds. Reforms are not only about technical changes; institutional arrangements need to be clear, facilitate discipline, decision-making and scrutiny of those decisions. Modifying and implementing reforms with alignment to existing policies in the local context with longer-term strategies can indirectly impact greater fiscal discipline on different government levels. The overall goal is to learn from experience and make longer goals rather than run for successful PEFA reports in order to satisfy DPs and gain more aid.

It seems that work frame of central bodies such as MoFEP has fewer problems than certain numbers of MDA, as legislative processes stand well in opposition to actual budget execution. Firstly, this implies that such vertical centralization can be used to demonstrate political engagement and authority on lower levels, empowering and strengthening roles of other central bodies, such as Cabinet office. Political power can be turned into recognition and respect when it comes to budget execution and help persuade good practical performance. Moreover, it can engage administrators to help improve policies and guidelines based on real life experience. Policies should help to set how resources are used rather than just implementing new legislation. Secondly, such downstream reforms in budget implementation actually lead to the systems decentralization, making it more flexible (Peters, 1998).

Decentralization is often used to describe Ethiopia's success. It did not only provide administrative reform, it was also driven and based on strong political imperatives, putting technical agendas of DPS on side and focusing to existent level of human resources, and knowledge, updating and improving existing systems rather than changing in alignment with international best practice (Peterson, 2011) Decentralization in developing countries is challenging as it depends on human resources (Peterson, 2011). Political agenda should be clearly stated on

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every level, representing control, making the budgeting more strategic and goal oriented process, ensuring better services on the way. This comprehends World Banks (2009; 2011) recommendations on linking practice between sectorial policies by creating the Budget Framework Paper, which sets out the strategic framework and trade-offs behind the proposed sector/MDA expenditure. Developing a reporting system that can trace the amounts transferred within and amongst the different levels of government should create a wider aspect of potential cost savings and improve accuracy and timing (World Bank, 2011), thus better service delivery. Additionally, Government (The Republic of Ghana, Ministry of Finance, 2013) shows step forward in Program based budgeting (PBB), leaving Activity Based Budgeting (ABB). System as such does not focus on service delivery. Again, this is a result of MDAs management. The new approach will allow MDAs to be more strategic in their approach to budget management and make the process of budget preparation easier (Porter et al., 2011).

Close cooperation of MDAs with central departments might simplify administration, however, dialog and cooperation with all key players, rather than just centralized bodies might generate greater inputs (Peters, 1998). Besides turning to the inner human capital, some of the governments realized the benefits of turning to the large number of participants, public procurements and debates in order to conceptualize programs and services. Prioritizing ideas and suggestions with feelings of collaboration, nourishes accountability for PFM reforms. Peoples engagement in MDAs should be solid ground for financial reforms as those people are responsible for financial expenditure. In addition, such close cooperation asks for more transparent inner and external audit to attract professional staff, moreover stop the repetition of unlisted spending or allegations, furthermore - corruption. Efficient internal audit can support administrators effectiveness, control and risk management. Modern internal audit should be treated professionally in order to encourage staffs with emerging developments and networking opportunities. And, a key short-term objective for the budget transparency movement is to encourage more systematic publication of budget documents (Betley et al., 2012; Dryden, 1997).

At the end, a combination of such steps might improve cash flow forecasting and cash management, and the publication and updating of a medium term debt management strategy (world bank).

In such surroundings of cross agency and cross-sectorial cooperation, GoG needs to be aware of leadership role importance. Reporting systems to internal control follows the accounting procedures and indirectly brings personnel to budgeting reforms, so roles and responsibilities become extremely important. Managing human resources and knowledge calls for change. Such changes might involve training in relation to performance measurement. Strong evidence of leadership and good management is more important on every level, making sure steps are

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followed and success is awarded, especially with senior management. Sharing of inner and international experiences helps to build and strengthen a common knowledge base (Betley et al., 2012). The recommended consensus is to learn from international experience but finding solutions in Ghana context, thus, real life experiences.

GoG in its joint report (World Bank, 2011; The Republic of Ghana, Ministry of finance, 2013) shared the practice of the integrated monitoring system to help with cash management monitoring and control and prevent an accumulation of debts, moreover it addressed an improvement of service delivery with emphasis on management of human resources, as key to services.

At the end, improving the efficiency of budgetary operations will take time and require actions on several fronts.

Conclusion Extensive reports from various authors suggest there are gaps in Ghanas PFM, generally strong in legal framework but poor in implementation, more importantly - control. To introduce fiscal discipline (and cut over spending) Ghana needs to return to policy creation, as the base for introducing horizontal networking among various institutions, simultaneous creating stronger systems of accounting (to control spending and performance). To support accounting and budget management on lower levels, efficient and functional internal audits need to be extensively introduced. Finding the balance with control and flexibility, moreover in legislative and local experiences, could, indeed, make Ghana shine in the highly competitive game of economic development.

References

Ackah, C. G., Bortei-Dorku Aryeetey, E., and Aryeetey, E. (2009) Global Financial Crisis Discussion Series. Paper 5: Ghana [online]. Available from: http://dev.odiorg.chaptermediadevelopment.com/sites/odi.org.uk/files/odi-assets/publications-opinion-files/4325.pdf [Accessed 2 January 2014] Allen, R. (2009). The Challenge of Reforming Budgetary Institutions in Developing Countries. International Monetary Fund. Andrews, M. (2010) How far have public financial management reforms come in Africa? [online]. Available from: http://dash.harvard.edu/bitstream/handle/1/4448885/Andrews_HowFar.pdf [Accessed 2 January 2014]

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Betley, M., Bird, A. and Ghartey, A. (2012) Evaluation of Public Financial Management Reform in Ghana, 20012010. Final Country Case Study Report. Sida [online], June Available from: http://www.oecd.org/countries/ghana/ghana.pdf

Broni-Bediako, E., & Addei, I. (2010) Managing the huge expectations of Ghanas oil and gas discovery. International Journal of Economic Development Research and Investment, 1-2.

De Renzio, P. (2009) Taking Stock: What do PEFA Assessments tell us about PFM systems across countries?. London: Overseas Development Institute (ODI).

Dryden, C (1997) Public expenditure: effective management and control. London: Institute for Public Policy Research. Economic Commission for Africa (2010) Innovations and Best Practices in Public Sector Reforms: The Case of Civil Service in Ghana, Kenya, Nigeria and South Africa [online]. Available from: http://www.uneca.org/sites/default/files/publications/innovations_in_the_public_sector.pdf [Accessed 3 January 2014] Gollwitzer, S. (2011) Budget institutions and fiscal performance in Africa. Journal of African Economies, 20(1): 111-152 Lee Jr, Johnson, Joyce (2013) Public Budgeting Systems. Burlington: Jones and Barlett Learning. Peterson, S. B. (2011) Plateaus not Summits: Reforming Public Financial Management in Africa. Public Administration and Development, 31(3): 205-213 Peters, B.G. (1998) Managing horizontal government: The politics of co-ordination Public Administration, Peer Reviewed Journal, 76 (2): 295- 311 Porter, D., Andrews, M., Turkewitz, J. A. and Wescott, C. G. (2011). Managing public finance and procurement in fragile and conflicted settings. International Public Management Journal, 14(4): 369-394 Quist, R. E., Betley, M., Smith, D. A., Ganguli, R., Ochieng, M., and Pot, F. (2010) Republic of Ghana Public Expenditure and Financial Accountability 2009. Rotterdam: Ecorys.

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Schick, A. (1998). A contemporary approach to public expenditure management. World Bank Institute. World Bank (2009) Ghana - 2009 external review of public expenditures and financial management. Vol.1, Public expenditure review (PER). Washington, DC: World Bank. World Bank (2011) Ghana - Joint Review of Public Expenditure and Financial Management. World Bank [online], Monday 10th January Available from: https://openknowledge.worldbank.org/handle/10986/2833 [Accessed 28 December 2013]

The BBC (2007) Ghana 'will be an African tiger'. BBC [online], Tuesday 19th June Available from: http://news.bbc.co.uk/1/hi/world/africa/6766527.stm [Accessed 23 December 2013] The Republic of Ghana, Ministry of Finance (2013) Programme based budgeting guidelines concept and specification [online]. Available from: http://www.mofep.gov.gh/sites/default/files/pbb/PBB%20Guidelines%20for%202014%20Budget.pdf [Accessed 30 December 2013]