Extractive revenue volatility threatens GH₵30bn expressway dream; contingency measures needed – CIPAC

The Chartered Institute of Project Analysts and Consultants (CIPAC) says Ghana’s bold ambition to transform its infrastructure landscape through the GH₵30 billion Big Push programme deserves strong support, but the financing architecture underpinning the programme must be sufficiently resilient to withstand fluctuations in extractive-sector revenues.

According to CIPAC, the concern is about ensuring that the financing arrangements for such a long-term investment remain robust when the economic assumptions supporting them change.

“The concern is not about the necessity of the expressway. On the contrary, the Accra–Kumasi corridor represents one of Ghana’s most important economic arteries, linking major commercial, industrial, agricultural and population centres. The concern is about ensuring that the financing arrangements for such a long-term investment remain robust when the economic assumptions supporting them change”.

In a statement, its Fellow, Amo Agyapong, said the GH₵30 billion commitment is significant and the expectations surrounding the Accra–Kumasi Expressway are high.

“Government has projected that the project will improve connectivity, reduce travelling time and transport costs, facilitate trade and investment, create employment and unlock economic opportunities along the corridor. However, projects of this magnitude cannot be managed solely on the basis of headline allocations. They require comprehensive financial-risk management, especially where a significant portion of the underlying fiscal space is connected to revenues from commodities whose prices and production levels can change”, he pointed out.

Extractives Revenue Challenge

Mr. Agyapong continued that Ghana’s extractive sector remains a major contributor to government revenue and the broader economy.

He added that gold is a leading source of export earnings, while petroleum revenues continue to contribute to the national budget. “Mineral royalties and petroleum-related receipts can provide valuable resources for financing development infrastructure.

However, extractive revenues are inherently volatile”.

He added that exchange rate movements can further affect the cedi value of revenues and expenditure. Thus, this creates a fundamental project-financing challenge.

“When government makes multi-year infrastructure commitments based on projected extractive revenues, there is always the possibility that actual receipts will be lower than forecast. If this risk is not adequately provided for, a revenue shortfall could result in delayed payments, slower construction, contractor claims, increased financing costs or the need to reallocate resources from other priority areas”, he alluded.

For a project such as the Accra–Kumasi Expressway, he indicated that any prolonged interruption could have consequences for both the project's cost and completion schedule.

CIPAC's Proposed Contingency Reserve

CIPAC proposed contingency measures including the institutionalisation of a contingency reserve specifically designed to protect major strategic infrastructure from revenue volatility.

“The principle is straightforward. During periods when extractive-sector revenues perform above conservative budget benchmarks, a predetermined portion of the additional receipts could be placed into a protected reserve.During periods of revenue underperformance, the reserve could be accessed under clearly defined conditions to maintain critical project commitments.”

It added that the reserve should not become another avenue for uncontrolled expenditure, rather, it should operate under strict rules, with clear eligibility criteria, withdrawal triggers, reporting requirements and independent oversight.

It also proposed a contingency reserve, which it said should form part of a disciplined project-financing framework.

It urged the government to continue to use realistic revenue assumptions when preparing annual and medium-term budgets.

“Project costs should be independently reviewed. Procurement should be competitive and transparent. Contracts should contain appropriate risk-allocation mechanisms.

Cost and schedule performance should be monitored continuously. And project-level financial information should be available to Parliament and the public”.

“The reserve should therefore complement, rather than replace, sound fiscal and project-management practices”, it added.

It also urged independent professionals, Parliament, civil society and the media to also contribute to accountability and informed public discussion.

Planning for the Commodity Cycle

CIPAC argued that Ghana’s experience with natural-resource revenues demonstrates the importance of planning beyond periods of high commodity prices.

“When gold or oil prices rise, government revenues can improve considerably. Such periods create an opportunity to strengthen fiscal buffers rather than immediately increasing permanent expenditure commitments. Conversely, when commodity prices fall, previously accumulated reserves can provide temporary support. This is the essence of counter-cyclical fiscal management”.

CIPAC believes that major infrastructure programmes should incorporate this principle more deliberately.

It said the objective should be to ensure that infrastructure investment is maintained at sustainable levels across the commodity cycle. “The country should not have to choose between protecting strategic infrastructure and meeting other essential public obligations every time extractive revenues underperform”.

Beyond the GH₵30 billion

It stated that the GH₵30 billion figure should therefore not be regarded simply as an expenditure target.

“It should be understood as part of a long-term national investment strategy.

The ultimate measure of success will be whether the funds generate durable infrastructure and measurable economic value”, it said.

For the Accra–Kumasi Expressway, it noted that success should mean more than completing a road.

“It should mean creating an efficient economic corridor that supports trade, reduces logistics costs, improves mobility and contributes to broader economic productivity”, it concluded.

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DISCLAIMER: The Views, Comments, Opinions, Contributions and Statements made by Readers and Contributors on this platform do not necessarily represent the views or policy of Multimedia Group Limited.