Financial Derivatives and Risk Management of Public Sector Organizations in Ghana

BOADU AYEBOAFO

Abstract


 

ABSTRACT

This article examines the various financial risks faced by public sector organizations in Ghana and how restrictive clauses in the Financial Administrations Act, 2003 and the Public Procurement Act 2003 effectively prevent Finance Directors of public sector organizations from trading in various derivative products to manage such financial risks. The article discusses the huge opportunity loss incurred by public sector organizations because of the restrictive clauses in the Financial Administrations Act, 2003 and the Public Procurement Act 2003. The paper gives a brief overview of the various derivative products available on the capital market for managing financial risk. The paper then analyses the cash flow patterns of public sector organizations in Ghana, with particular reference to public tertiary institutions and discusses various financial risks associated with such cash flow pattern.  Provisions in the financial Administration Act and the Public Procurement Act that make it difficult for public sector organizations to trade in derivatives are reviewed for their impact on modern financial management.  The paper makes recommendations for addressing the problem by calling on the various stakeholders of Public Institutions to push for the review of the restrictive clauses in order to make it possible for Public sector organizations to use appropriate derivative products to manage their risk exposure in order to be competitive.


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ISSN : 2251-1555