PETROLEUM REVENUE: Promoting Sustained Funding For Agriculture and Education in Ghana

The Africa Centre for Energy Policy (ACEP) has stated that the increasing disparity between petroleum revenue allocations and actual disbursement to Agriculture and the Educational sector threatens the realization of a thriving diversified economy in Ghana.

Addressing the media at the launch of campaign project by ACEP and OXFAM to promote sustained funding for agriculture and education in Ghana with contributions from petroleum revenue in Takoradi, a policy analyst at the Africa Centre for Energy Policy, Charles Ofori indicated that the trend of disproportionate disbursement to Agric did not even change when petroleum revenues increased and that the nominal increases in expenditure is not proportional since it fell short of the AU’s benchmark of ten percent (10%) of a country’s expenditure.

Research Summary

Ghana passed the Petroleum Revenue Management Act (PRMA), 2011 (Act 815) to provide the framework to manage petroleum revenues after commercial production began in 2010. The PRMA prescribes allocating of a portion of petroleum revenue to budgetary support through the Annual Budget Funding Amount (ABFA). Further, the Act requires the prioritisation of a maximum of four areas for ABFA funding. The priority areas are relevant in order to maximize the rate of economic development and promote equality of economic opportunity to ensure the wellbeing of all citizens. Achieving this objective requires investments in the priority areas such that oil revenues will act as additional funds that must complement, and not replace, existing development finance efforts of the government in these areas.

For almost a decade, physical infrastructure and service delivery in education, and agriculture modernisation have featured as priority areas for ABFA allocation. While it is important to assess the impact of petroleum revenue on all the prioritised sectors that receive petroleum revenue, this study focused on the education and agriculture sectors. This is because the agriculture and education sectors in Ghana are two important sectors that have the capacity to significantly contribute to economic diversification and provide human capital for economic growth.

The African Union (AU), recognising the importance of the agriculture sector to the economic development of its member states committed to sustaining its growth and development through the Maputo Declaration in 2003. The Declaration among other decisions directed governments to allocate at least 10 percent of government expenditure to agriculture development. Additionally, African governments made a commitment to sustain a minimum annual agriculture sector growth at 6 percent.

On education, the United Nations (UN) adopted the Incheon Declaration in 2015 as a tool for ensuring inclusive and equitable quality education. This Declaration requires governments to allocate at least 4 to 6 percent of GDP and/or 15 to 20 percent of total public expenditure to education.

This paper assessed the contribution of petroleum revenue in response to the AU and UN commitments. It analysed trends in real government expenditure in the agriculture and education sectors based on actual government expenditure data under the Classification of Functions of Government (COFOG) from the Controller and Accountant General’s Department (CAGD). The following findings were made:

1. Ghana has not been able to meet agriculture expenditure targets as outlined by the Comprehensive Africa Agriculture Development Programme (CAADP). Contrary to reviews from the Ministry of Food and Agriculture, data from CAGD indicate that when actual COFOG measures are used, Ghana requires increased effort to meet the CAADP target of 10 percent of total government expenditure in the agriculture sector.

2. Education sector has met the minimum education expenditure benchmark of 15 percent of total government expenditure and/or at least 4 percent of GDP amidst persistent challenges. For over a decade, government expenditure in education has surpassed the Incheon declaration benchmark of at least 15 percent of total government expenditure. However, persistent problems in the education sector require more funding on the assumption of efficiency of spending.

2. The education sector receives much attention for ABFA allocation than the agriculture sector. While the education sector has received considerable disbursements of ABFA receipts, the same cannot be said for the agriculture sector. On the average the education sector has received about 90 percent of its planned ABFA expenditure between 2017 and 2019, compared to 33 percent in the agriculture sector within the same period.

In light of these findings, we recommend that:

1. Petroleum revenue allocation should lead to a substantial increase in total expenditure of government revenues in education and agriculture to address the challenges of the sectors. Otherwise, the prioritisation of the sectors will not achieve the objective of the PRMA.

2. Government must ensure that planned ABFA allocation to the agriculture and education sectors are fully disbursed. The current practice of under disbursement even when the ABFA is realised denies the sectors of the needed cash flow for investment.