Menu
- 12 Marks
Question
b) The financial information below relates to the Consolidated Fund of Ghana.
Statement of Financial Position of the Consolidated Fund as at December 31, 2018
| Item | 2018 (GH¢’million) | 2017 (GH¢’million) |
|---|---|---|
| Non-Current Assets | ||
| Property Plant and Equipment | 4,200 | 5,600 |
| Equity investment | 10,000 | 12,000 |
| Total Non-current assets | 14,200 | 17,600 |
| Current Assets | ||
| Work in progress | 2,500 | 2,000 |
| Receivables | 1,100 | 900 |
| Cash and cash equivalent | 3,250 | 2,980 |
| Other assets | 450 | 600 |
| Total current assets | 7,300 | 6,480 |
| Total assets | 21,500 | 24,080 |
| Funds and Liabilities | ||
| Accumulated Fund | (111,280) | (111,620) |
| Current Liabilities | ||
| Payables | 1,600 | 19,000 |
| Trust monies | 2,540 | 2,300 |
| Domestic loans | 11,240 | 12,500 |
| Total Current Liabilities | 15,380 | 33,800 |
| Non-Current Liabilities | ||
| Domestic loans | 52,000 | 43,000 |
| External loans | 65,400 | 58,900 |
| Total Non-Current Liabilities | 117,400 | 101,900 |
| Total Funds and Liabilities | 21,500 | 24,080 |
Additional Information:
i) The total market value of all final goods and services produced domestically in Ghana for 2018 and 2017 fiscal years amounted to GH¢205,100,940,000 and GH¢185,600,400,000 respectively.
ii) According to the Statistical Service data, the population of the country is estimated as 25,000,000 in 2018 and 23,900,000 in 2017.
Required:
i) From the information above, compute for the two financial years, the following ratios:
- Gross Debt
- Net Debt percentage
- Debt per Capita
- Debt to Gross Domestic Product ratio
- Total Asset to Debt
- Capital Asset per Capita (6 marks)
ii) Based on the ratios computed, write a report discussing and analyzing the financial position of the Consolidated Fund to the Head of a “think tank” of a Civil Society Organisation for Financial Accountability. (6 marks)
Answer
i)
| Ratio | 2018 | 2017 |
|---|---|---|
| Gross Debt (interest bearing liabilities) GH¢’m | 128,640 | 114,400 |
| Net Debt percentage (Financial Asset -Gross Debt) GH¢’m | -114,290 | -98,520 |
| Domestic Debt per Capita (Debt/Pop) GH¢* | 5145.60 | 4786.6 |
| Debt to GDP (Debt/GDP*100) % | 62.72% | 61.64% |
| *Total Asset to Debt (Total Asset/debt 100) % | 16.71% | 21.04% |
| Capital Asset per Capita (Capital asset/pop) GH¢ | 568.00 | 736.00 |
(12 ticks @ 0.5 marks = 6 marks)
Report of the Financial Position of the Consolidated Fund for 2018 financial year
Introduction
The financial position of the Consolidated Fund has been analyzed using some ratios and other indicators. The report examines the financial condition of the government based on the assets and liabilities disclosed in the financial reports.
Discussions and Analysis
Gross debt measures the total interest-bearing liabilities of the Consolidated Fund. The result shows an increase in total debt of the government from GH¢114.4 billion in 2017 to GH¢128.64 billion in 2018, a percentage increase of 12.45%. This gives a bad signal for the financial position of the government as this will negatively affect the financial performance of subsequent years in the form of high-interest expenses. The debt sustainability of the country is threatened by a high debt to GDP ratio which is on the increase from 61.64% in 2017 to 62.72% in 2018. Domestic debt per capita also increased from GH¢4786.60 in 2017 to GH¢5145.60 in 2018, showing an increasing debt burden on each citizen. Thus, the debt position of the Consolidated Fund is not encouraging and it has serious consequences for sustainability and future service delivery.
The use to which the debt is put is very important. The ratios indicate that the debt might have been used for current purposes and repayment of matured debt. The net debt position is unfavourable, deepening from GH¢98.5 billion in 2017 to GH¢114.3 billion in 2018. This shows that the debt stock of the Consolidated Fund is not backed by adequate financial assets and this increases the country’s risk exposure. The amount of debt used in the acquisition of capital infrastructure is insignificant. The result shows that only 21% of debts reflect in capital infrastructure in 2017 but dropped further to only 16% in 2018. This shows that the debt is being used for recurrent spending and debt payoffs. This trend is disturbing more when the capital asset per capita is very low. The negligible amount of GH¢736.4 share of capital assets by individual citizens in 2017 further dropped to GH¢568 in 2018.
Conclusion
It is observed that the financial condition of the Consolidated Fund is precarious and drastic measures and reforms are required to reverse the trend. Effective debt management policies are needed to reverse the situation. The use of debt for financing recurrent expenditures should be avoided as much as possible.
Award 1 mark each for introduction and conclusion. 1 mark for any point raised to the maximum of 4 points. = 6 marks
- Tags: Consolidated Fund, Debt Management, Financial Ratios, Public Sector Analysis
- Level: Level 2
- Topic: Public sector fiscal planning and budgeting
- Series: NOV 2019
- Uploader: Sarah