An Analysis of Financial Sustainability in Local Government in Ghana

Abstract

Purpose: The study aimed to analyse the financial sustainability in local government in Ghana. The study used census balanced panel data design and survey approach to administer 621 structured questionnaires to the chief audit executives, audit committee and board of directors’ chairpersons in the 207 MMDAs. Design/Methodology/Approach: A research design that was chosen was the ex-post facto research and secondary data was also sourced from the Auditor General’s report from 2016-2020. Data collected were analysed using descriptive statistics. Findings: The findings from the study indicated that all the financial sustainability indicators variables (net surplus margin ratio, net cash flow from operations to total debt ratio, rates coverage ratio, rates revenue to total revenue ratio, and asset turnover ratio) have a significant effects with financial sustainability. The study discovered that, on average, the overall financial sustainability of Municipal and Metropolitan District Assemblies (MMDAs) for the period 2016-2020 was -42.21. This figure places the financial sustainability of MMDAs in the category of being financially unsustainable, as it falls below the threshold of -4, which is considered financially unsustainable. Implications/Originality/Value: The findings suggest that MMDAs have limited capacity to meet their short-term financial obligations and no capacity to meet their medium to long-term financial commitments. This highlights the urgent need for major adjustments in revenue generation and expenditure management, as well as structural reforms to enable MMDAs to effectively handle unforeseen financial shocks and changes in their operational activities.