In politics, academia and social circles, the debate on the utilization of the Ghana Heritage Fund (GHF) now have taking center stage over the past few years. The debate is often stoked by governments’ decision to amend the law to allow for the usage of the fund, other than what was originally intended.
It first surfaced in 2015, when the Government of Ghana (GoG) was faced with the challenge of balancing the budget as a result of depressed oil prices denting the country’s petroleum revenue. The idea of deploying part of the Heritage Fund to support the budget was then mooted in official circles. However, the suggestion was defeated after a much heated debate, forcing government to resort to borrowing to finance the budget.
It resurfaced in 2017 when the Senior Minister Yaw Osafo Marfo announced government’s decision to use the fund to finance the free senior high school (SHS) policy since it has the potential of building a good foundation for the country. The proposal again fell flat, in the face of public criticism.
Quite recently, government has proposed the amendment of the Petroleum Revenue Management Act, 2011 (Act 815) to allow for the withdrawal from the Heritage Fund to undertake emergency expenditures in periods of national emergency, and to fight the current pandemic; COVID-19.
In all these, political actors take center stage, either supporting or opposing the call for the utilization of the fund for other purposes depending on their political lineage. Those in government have always and automatically supported the call anytime it comes up, while the opposition criticizes the proposal, but is quick to change position when it is presented with the opportunity to rule the country. The inconsistency by proponents of the use of portions of the Heritage Fund to support some sectors of the economy such as education, has been one major problem.
But while politicians play their usual game, civil society groups, the academia and other Social Commentators also take a bite at the issue, often calling on government not to be tempted to drain the fund. But once in a while, a section of these groups also change position or goes mute when the debate comes up at a later time; leaving ordinary citizens confused, for lack of consistency and neutrality.
The Heritage Fund
The Ghana Heritage Fund is a creation of section 10 of the Petroleum Revenue Management Act (PRMA) 815 enacted in 2011 (amended in 2015), to provide the framework for the collection, allocation and management of petroleum revenue in a responsible, transparent, accountable, and sustainable manner for the benefit of the citizens in accordance with article 36 of the 1992 Constitution, and related matters.
The purpose of the fund as captured in the PRMA, is to provide an endowment to support the development of future generations when the petroleum reserves have been depleted. As an endowment asset fund, it is expected to ensure inter-generational equity and create an alternative source of income for the future. It is also set up to build up the countries international reserves, to support its external balances and the external value of the Cedi.
The fund is also used to bolster the country’s credit worthiness, and as a result its ability to borrow on the capital markets unsecured (Otoo, 2015). The idea of the fund is not a new, and is fashioned largely on the Norwegian-type Sovereign Wealth Fund model, a savings mechanism which has existed till today.
In terms of distribution, the Heritage Fund receives 9 percent of the country’s annual petroleum revenue accrued to the Petroleum Holding Fund (PHF). This amount is saved at the Central Bank till oil reserves in the country have been depleted. The remaining 91 percent in the PHF goes into the Annual Budget Funding Amount (ABFA) and Stabilization Fund. 70 percent of this goes into the ABFA which goes to support the annual budget of the country, whilst the remaining 21 percent goes into the Stabilization Fund to be used to cushion oil price in the event of oil price fluctuations.
In law, the percentage of the GHF as agreed by parliament can only be reviewed after fifteen (15) years according to section 10 (4) of the PRMA. Section 20 of the Act states that the Heritage Fund can only be touched within a year after the oil reserves have been depleted.
The amount accrued to the fund together with the Stabilization Fund could then be lumped into a single fund called the Ghana Petroleum Wealth after which the former name will cease to exist. And that “no withdrawal is allowed until after depletion of oil reserves. And after 10 years, interest can be spent subject to simple majority in Parliament”. This effectively puts beyond reach the issue on utilizing the funds for any other purpose than that for which it was designed.
The Debates
While some politicians, non-political groups and personalities have stood against amending the law to allow for the usage of the fund for other purposes, others argue that the country would make a grave mistake should it render the Fund idle with the intention of preserving it for future generations.
For those who holds the view that “the fund must not be left idle”, they believe the fund would yield greater benefits for both present and future generation if it is put to profitable use now, in areas that held promise for the economy. For such persons or groups, the Heritage Fund should be utilized as a creditor to areas of the economy where there are opportunities for growth and profitability, say agriculture. They argue that it does not make sense for government to borrow on the international markets at exorbitant rates while the returns on the GHF investments in financial instruments offshore remains extremely low (Kwakye, 2017).
Kwasi Pratt Jnr. is one of such personalities supporting the present use of the fund. He suggests that the monies in the fund could have been invested now for maximum benefits in the future instead of reserving some monies for future generation. In his opinion it is sensible to invest the fund in a profitable venture like education that would produce future benefits, rather than packing monies for future generation. He insist that leaving the monies sitting idle in the Heritage fund is never a good idea because the value of money depreciates over time, and that if we want a good future for children and grandchildren to come, it is about investing in education, and building the necessary infrastructure from the Heritage Fund.
Others share in Mr. Pratt’s opinion, suggesting that investing the fund in non-financial assets such as human capital and infrastructure could be superior to saving it in financial instruments. This is because these investments will support economic growth and create durable wealth that will benefit both current and future generations. Countries such as Japan and the Switzerland have been cited by Kwakye (2017) as some states without natural resources, but having relied on the development of their human capital and advanced technology to propel them to first-world status for the benefit of their current and future generations.
However for those who insist that monies in the Heritage Fund is ”saved as originally intended” have trouble with government if it seeks to put the fund to present use. Their criticism is anchored on the belief that government cannot be trusted to put the monies into current use in a manner that would yield the intended benefits for generations to come.
Dr. Steve Manteaw, a policy analyst at the Integrated Social Development Center (ISODEC) is one of such critics who describe as unwise attempts to spend the Heritage Fund on recurrent expenditure. He is of the opinion that it won’t yield the benefits that one wants to see in the economy, in a way that benefits future generations.
Also in the opinion of Financial Analyst Sydney Casely Hayford, the Heritage Fund belongs to the unborn children of the people of Ghana. He asserts that it’s the future generation’s money and those of us who are here today should forget about touching it.
Others such as the Institute for Energy Security (IES) who support the “save” argument reiterate the original intent of the Heritage Fund as being for the benefit of future generations, and that no amendment in law is justified.
In the opinion of IES, any attempt to go drain the Heritage Fund prematurely would be seen as an assault on the well-being of future generations, and a wholesale theft of the prospects of generations to come.
The framers of the Petroleum Revenue Management Fund and those supporting the original intent of the Ghana Heritage Fund, are guided by the fact that the Heritage Fund could be spent unwisely today, to the detriment of generations to come. They insist that a substantial amount of the country’s petroleum resource have already been used and are still being deployed through the Annual Budget Funding Amount (ABFA) to develop human capital, develop infrastructure, and advance technology; to benefit both present and future generations.
For “save proponents”, mechanisms such as Stabilization Fund, the Ghana Infrastructure Investment Fund and the Contingency Fund are all available to support current national budgets.
Unfortunately, all these funds are almost drained, with government failing to properly account for the 91 per cent of oil proceeds that goes through such fund — leaving the Heritage Funds “as the last man standing” with a little over a Billion US Dollar.
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The Author, Paa Kwasi Anamua Sakyi (aka Nana Amoasi VII), is the Executive Director for the Institute for Energy Security (IES).
Email: paakwasi@iesgh.org
The writer has over 23 years of experience in the technical and management areas of Oil and Gas Management, Banking and Finance, and Mechanical Engineering; working in both the Gold Mining and Oil sector. He is currently working as an Oil Trader, Consultant, and Policy Analyst in the global energy sector. He serves as a resource to many global energy research firms, including Argus Media and CNBC Africa.