Free SHS pledge, a risk to government finances

The new Ghanaian government’s pledge to provide free secondary education at public schools, less than a month after it said it found a budget hole of 7 billion cedis ($1.5 billion), could compound the nation’s financial trouble.

After initial reports, citing Senior Minister Yaw Osafo Maafo, that an oil-savings fund would be used to underwrite free education, Finance Minister Ken Ofori-Atta said in a broadcast on Citi FM on Feb. 17 the government won’t touch the so-called Heritage Fund and that schooling would be funded from the budget.

President Nana Akufo-Addo, whose New Patriotic Party won a general election in December, told lawmakers Tuesday that the free secondary education policy would be implemented from September.

The West African nation in April 2015 turned to the International Monetary Fund for a three-year program of almost $1 billion to help prop up its finances and currency. Ghana’s budget deficit for this year could be almost double the government forecast of 5.3 percent of gross domestic product, Ofori-Atta said after the state announced earlier this month it discovered about 7 billion-cedi in undisclosed spending by the previous administration.

“In the eyes of the politician everything is achievable if you break the bank,” Franklin Cudjoe, president and chief executive officer of the Imani Center for Policy and Education, a research agency in the capital, Accra, said by phone. “If we use all the oil money for education, it will be at the expense of other critical sectors of the economy.”

Akufo-Addo will deliver his state-of-the nation address to lawmakers on Tuesday, outlining his administration’s plans for the year. The government will use next month’s budget presentation to announce tax breaks and other measures that it hopes will strengthen the private sector and revive the economy, which probably expanded at the slowest pace last year since 1990, Ofori-Atta said in a statement Sunday. He didn’t answer calls to his mobile phone on Monday.

“The new government has to react to the fiscal reality — the country has a budget deficit that is blowing out, they need to tighten up on the expenditure side and also to grow revenue to narrow that gap,” Yvonne Mhango, an analyst at Renaissance Capital in Johannesburg, said by phone. Free secondary school education “‘will only add to the pressure on the budget and expanding debt position,” she said.

The cedi strengthened 0.1 percent to 4.54 per dollar by 4:17 p.m. in Accra on Tuesday, paring its decline for the year against the U.S. currency to 7.3 percent.

While the cost of the government’s promise on schooling hasn’t been announced, the previous administration allocated 6.5 billion cedis for all levels of education in 2016, representing about 14 percent of the national budget of 46.5 billion cedis for the year, according to estimates presented to lawmakers in November 2015. The nation’s debt as a percentage of GDP was close to 74 percent at the end of last year, according to the IMF.

“Ghana doesn’t have much fiscal space,” Edem Harrison, an economist at Accra-based Frontline Capital Advisors Ltd., said by phone. “This is a huge project that would require huge expenditure — the IMF program has made our budget tighter and this could throw the program off.”

–Ekow Dontoh via Bloomberg

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