The Minority National Democratic Congress (NDC) has criticised an arrangement between the Finance Ministry and Fidelity Bank to pay outstanding debts to contractors.
According to legislators, under the agreement, monies owed the contractors by the government would be paid through a borrowing and factoring mechanism.
Under the scheme, the affected contractors are to enter into an agreement with Fidelity Bank and have their monies paid at a significant discount ranging between 10 and 14%, the Minority explained in a press release issued on Tuesday.
The NDC legislators say although they are not opposed to a banking arrangement to pay off amounts owed to contractors they note that government did not require the contractors to pay a fee or interest to the bank after a long delay in clearing the arrears.
“…we are alarmed at this factoring arrangement which appears designed to extort monies from long-suffering contractors who have endured an excruciating two-year wait and expect to be paid for work done for the government.
“This move will further worsen the dire situation these contractors find themselves in, owing to the significant erosion of the value of the amounts owed them over the last two years. As noted earlier, many of them would have borrowed already to perform the job and they would have accumulated interest already. Under the circumstances, they will be left even worse off than ever before,” read the full statement below.
MINORITY STATEMENT ON FINANCE MINISTRY/FIDELITY BANK FACTORING OF DEBT OWED CONTRACTORS
The Minority in Parliament has become aware of a financial arrangement involving the Ministries of Finance and Roads, and Fidelity Bank, ostensibly for the benefit of contractors. Under the agreement, monies owed the latter by government would be paid through a borrowing and factoring mechanism. Under this scheme, affected contractors are to enter into agreement with Fidelity Bank and have their monies paid at a significant discount ranging between 10 and 14%.
We must state upfront that the NDC is not opposed to a banking arrangement to pay off amounts owed to contractors. Indeed, following the passage of ESLA in 2015, the NDC Used the initial proceeds to underwrite a loan to pay contractors, in line with the enactment.
As we will show below, government paid the face value of the arrears to the contractors and bore the interest. The then government did not require the contractors to implicitly pay a fee or interest to the bank after a long delay in clearing the arrears and, in all probably, borrowing at first instance to perform the contract.
Against this background, we are alarmed at this factoring arrangement which appears designed to extort monies from long-suffering contractors who have endured an excruciating two-year wait and expect to be paid for work done for government. This move will further worsen the dire situation these contractors find themselves in, owing to the significant erosion of the value of the amounts owed them over the last two years. As noted earlier, many of them would have borrowed already to perform the job and they would have accumulated interest already. Under the circumstances, they will be left even worse off than ever before.
We are at a loss as to how a government that has claimed loudly to Ghanaians and the world that (a) they not only had the means to pay; but (b) have paid these contractors. Recall that in the 2017 Budget, the NPP claimed that it had inherited a huge amount of “arrears” from the NDC, relating in a deficit of 10.3 (revised to 9.3) percent. The NPP got political mileage from the claim and ignored the explanation that the amount was a policy shift to semi-accrual accounting under GIFMIS.
In the 2017 and 2018 Mid-Year Budget, the NPP claimed to have paid these arrears and the deficit had gone down to 5.9 percent at the end of 2017. Again, we argued that the Government had merely done “offsets” that were alien to our fiscal regime, instead of making actual payments to the contractors.
While this type of financial manipulation is alien to our fiscal regime and, therefore, serious enough, it is difficult to countenance an arrangement that will make contractors underwrite a fiscal liability after causing them considerable financial harm, through a non-payment of their liability over the past 2 years.
The failure to pay the contractors is largely self-inflicted and stems from the obnoxious financial engineering and consumption policies of the Akufo-Addo government. The Akufo-Addo government inherited sufficient financing mechanisms that should have stood them in good stead to honour their obligations to contractors.
Almost all infrastructure-based statutory funds, particularly the GETFund and the Road Fund, have had sufficient revenue inflows to have enabled them to pay outstanding debts. Recall that under the IMF Program, Government undertook to clear arrears owed to the Statutory Funds. We now see the reverse after the NPP government intentionally introduced the Capping and Realignment Act (Act, 947) to starve Statutory Funds. The predicaments of contractors worsened terribly with the passage of the so-called “capping” policy.
Since the largest share of government arrears relate to roads, an estimated Ghc 1.3 billion accrues annually under ESLA (enhanced Road Levy) to meet these commitments. Furthermore, the GETFund, for instance, has accrued about GHS 2.8 billion in the last two years, topping the amounts going into the Road Fund from the conventional and enhanced (ESLA) road levy.
The Akufo-Addo government has through the Capping and Realignment policy depleted the funds of up to Ghc 2 billion (excluding other IGF cappings) over the last two years. It has rendered them incapable of meeting the mandate to fund the provision of educational and road facilities respectively.
Furthermore, this government has had unprecedented tax and non-tax (oil and non-oil) revenue inflows which should have positioned them to clear these debts. They have received about GHS 4.7 billion in oil revenues over the last 23 months and benefited from close to GHS 80 billion in tax revenue as of the middle of this year. Crude oil output has increased from an average of 73,000 bpd to over 170,000 bpd, under a scenario of increasing (not decreasing) prices. Gas supplies from TEN and SANKOFA have also increased.
In sharp contrast to exploiting these gains, as they promised Ghanaians, they have rather increased Ghana’s debt by a whopping GHS 50 billion as of September 2018. Needless to state that, they have virtually no tangible investment or national asset to show for this level of “unprecedented” borrowing.
It is surprising therefore that despite their access to these funds, contractors remain unpaid up to this time. It is even more inexplicable that after taking them through this kind of frustration, government would now leave them at the mercy of banks through this factoring scheme.
The scheme is forcing them to forgo a portion of money due to them to pay government arrears. This is an implicit tax and borrowing arrangement that should have been tabled in parliament for approvals.
The Minority is opposed to this arrangement which appears to exploit the sacrifice, frustration and desperation of contractors to enrich some vested interests. This is a ridiculous way of forging ahead with a healthy partnership and growth agenda for Ghana’s private sector.
We demand that the agreement should not result in an off-balance sheet treatment of areas owed to contractors. In this regard, we request that government report on detailed account of the following:
the gross amount owed contractors as recorded in the GIFMIS accounts payable module;
the net cash payment to the contractors’;
the fees that fidelity is charging the contractors’; and
Treatment of the discounted amount extracted from the contractors’ must be treated as reductions in expenditure to government or revenue to government.
We strongly advocate for an immediate truncation of the factoring arrangement and urge government to take immediate steps to fulfil its obligations to contractors in a manner that would not further jeopardize their already precarious finances, this is a porous and poor substitute for the promise by then-candidate Akufo-Addo to pay contractors within one hundred days of his Presidency. It will go down history that for the first-time contractors are being asked to shoulder debt owed to government.
The Nana Addo led government must be reminded that the failure to pay contractors in the last two (2) years has been a major bane on banks and has inevitably led to the collapse of most of them. In a couple of days, we will issue a statement to strongly express our concerns about how the government’s deliberate action is costing our dear contractors and putting stress on the entire financial sector. It has even led to our once-vibrant services sector virtually go into recession.
The minority in Parliament is making an appeal to CSOs, economists, and accountants to help contractors reject proposals
Signed
Cassiel Ato Forson
Ranking Member, Finance Committee
22nd December 2018