Why does the Heritage Fund need protection? Let’s look at some reasons
In this Part, we begin by discussing the main reasons given for diluting or eliminating the Ghana Petroleum Funds (GPFs)—Heritage and Stabilization Funds—and to channel them into consumption or more aggressive investments. In contrast we argue that the PRMA performance to date points to how Ghana has been exploiting its latest natural resource endowment, crude oil and gas, to meet balanced and multiple consumption, budget and investment needs. We note that the Ghana Heritage Fund has had the least allocation from the PHF from FY2011 to FY2017–only US$325 million or 8 percent of the total amount of US$4 billion.
Arguments for depleting the Heritage Fund
The main arguments for diluting or depleting the GHF, and to a lesser extent, the GSF, is to spend now and generate future wealth, in lieu of the low interest income being earned. From a PRMA perspective, these arguments are not new and, therefore, not convincing or sufficient to make a change to the allocation rules. Currently more petroleum resources are going into consumption (“Goods and Services”), not investments while some GNPC and ABFA investment decisions have also come under scrutiny.
The second case for prioritizing “current budget needs” ( euphemism for consumption at any cost—is the reason why some oil-producing countries are accused of a consumption spree that results in a “Dutch disease”.
Ironically, it is the reason for setting up the GPF and making them virtually perpetual under the PRMA’s substantially non-discretionary rules. The tendency to patronize future generations can be dubious as our past shows. Ghana lacks enough reserves from use of past natural resources and, therefore, borrows to repair or replace national assets to make them operate efficiently. As noted later, this accounts for Ghana’s post-HIPC debt distress. Before the Sinking Fund, guaranteed and direct loans were not serviced sufficiently from the proceeds of projects, including our First Republic Infrastructure.
The criticism that is based on low returns is neither new nor a firm basis to assess performance (see Table 6 below). The 2010 petroleum revenue debates concluded that they are similar to household pension or child education funds and certain business reserve accounts, which are put in low-risk “conservative” plans. They deliberately preserve the principal sum against risky investment which maythen result in low returns being earned on the fund.
Allow our first Real Funds to mature
The PRMA has set up Ghana’s “true” funds for particular goals—a fiscal goal we could not achieve with a heavily earmarked budget, comprising statutory “funds” for rural development, health, roads, and education sectors. The deterioration in these point to insatiable spending habits but we seem to use the oil revenues to change course, to build buffers for spending, investment, debt management, contingencies, and financial stability.
There is no fundamental error in a PRMA structure that uses the petroleum funds to achieve these multiple national goals. The allocation of about 60 percent of annual petroleum revenues—that is increasing by output, including gas, and recovery in crude prices—to consumption is sufficient. We do not have to extend this to 100 percent to prove a point on priorities.
We will regret the lack of prudent and balanced use of the petroleum revenues and suffer the chastisement of other oil-producing countries that are deemed to consume and not save or invest. Even those who argue for depletion of the Heritage and Stabilization Funds reluctantly admire the buffer policies for countries such as Norway, Trinidad & Tobago, and Botswana. These countries went through a sacrificial phase that enables them to use their petroleum and other natural resource reserves to borrow at low costs to build infrastructure and develop. It is time to take a deep breath and wait for the 25 years under the PRMA for a review of the Ghana Petroleum Funds.
A Heritage Fund means one generation should not live off the sacrifices of its predecessors that also had “current budget needs”. In 25 years, if the decision is to deplete the GPF, it should not be for consumption. We should channel the excess savings into investments, preferably through the GIIF. It is only then that the heavens may smile on us and we could become the “little Norway” of Sub-Sahara Africa.