The Ministry of Finance’s Commitment Authorisation system is intended to give banks greater confidence to lend to contractors working on government projects by providing assurance that funding is available, a Technical Adviser to the Ministry has said.
Frederick Amissah said the system is part of measures to prevent government agencies from entering into contracts without a clear funding plan, a practice that can leave contractors unpaid and expose banks to non-performing loans.
He made the remarks during a roundtable discussion at the Chartered Institute of Bankers Ghana (CIB Ghana) Post-MPC Policy Seminar, followed by The High Street Journal.
According to Amissah, government arrears can have a direct impact on banks because contractors often borrow to finance the execution of public projects. When government fails to pay, the contractor may struggle to service the loan, leaving the bank with an impaired asset.
He said the Ministry introduced Commitment Authorisation to address this problem by requiring government entities to obtain confirmation from the Ministry of Finance before entering into contracts.
Under the arrangement, ministries, departments, agencies and state-owned enterprises must demonstrate that funding is available before committing government to new expenditure.
Amissah said this also gives banks something against which they can assess a contractor seeking financing for a government project.
“If you have a commitment authorisation from Ministry of Finance, the bank can confidently give you the money because they know that the money is there,” he said.
He explained that the system is designed to prevent agencies from creating financial obligations without first establishing how those obligations will be paid.
The measure is particularly important because contractors often rely on bank financing to mobilise resources and execute government projects before receiving payment from the state.
Amissah said the previous accumulation of arrears had created uncertainty for both contractors and lenders, with some banks becoming reluctant to finance businesses dependent on government contracts.
The Ministry is therefore seeking to create a system in which obtaining a government contract may be more difficult, but winning one provides greater certainty that the contractor will eventually be paid.
“We want to enter a regime where it is difficult to get a government contract, but you are assured that when you get a government project, you will be paid,” he said.
Amissah said the government’s broader objective is to ensure that expenditure is backed by a plan to pay, rather than allowing agencies to commit funds first and address the financing later.
He said this should help break the cycle in which unpaid government bills remain on contractors’ books, while the bank loans used to finance those contracts remain outstanding.
