Ghana’s staggering public debt; the way out

Adnan Adams Mohammed

There is still ensuing public debate over the level of Ghana’s public debt months after the Bank of Ghana made public its economic data.

Economists, financial experts, the two main political parties (the New Patriotic Party and the largest opposition party, the National Democratic Party) have continuously engaged in public debate as to how the debts are being managed and which political party has added more debts.

Some financial experts have explained that, there are several potential problems with high and growing levels of government debt and borrowing especially with developing countries like ours. These may include; high debt interest payments, crowding out, high taxes in the future, inflationary pressures, economy vulnerable to capital flight and increase in banking interest rates.

“The high level and growing government borrowing is a great concern to both the private sector and the international stakeholders”, the NDC have argued.

The government, in just two and a half years, has added some GHS76 billion to the debt stock since it came into office.

Currently, the public debt hovers around GHC198 billion or US$38.9 billion as at the end of March 2019 representing 57.5 percent of Gross Domestic Product, (GDP), from GHC147 billion which was 49.5 percent of GDP for the same period in 2018, according to figures from the Bank of Ghana, (BoG).

The external component of the debt increased to US$20.7 billion or GHC105.2 billion representing 30.5 percent of GDP from US$17.3 billion or GHC76.1 billion which was 25.5 percent of GDP for the same period last year.

While, the domestic debt also increased to GHC92.8 billion representing 30.5 percent of GDP from GHC71.8 billion which was 24 percent of GDP during the same period in 2018.

The economic managers are grappled with two major concerns. These are: very low revenue to debt servicing ratio and weak export to debt servicing ratio. These situations are making any attempt to manage the debt sustainably futile and gradually trapping Ghana into a debt stress zone and its very worrying if remedial steps are not taken immediately by the government to mitigate the risk associated with it.

Meanwhile, some economists are of the view that, debt accumulating can only be a liability if loans contacted from the domestic and offshore markets are not put into productive use in the medium to long term. So debt when put to proper use should not in any way be a threat or a challenge to the country’s economic development which is geared towards productivity.

Borrowing to invest in capital projects to generate revenue is good but not to borrow for consumption and payment of interests as it is the case of Ghana. For example, if the government of Ghana borrows US$2billion for infrastructure development or construction of roads in the farming areas, that is good debt that reaps the social, financial and economic reward. If that same borrowed fund is used to pay wages and salaries and to pay interest on the debt, then that becomes a concern which must be addressed.

It is important that any borrowing by the government must have a specific purpose and specific objective rewards in the interest of the citizenry. The financial or economic consideration for the borrowing must be projected for both the tenor of the loan and the substantial portion of the life span of the project.

In the United States of America with a population of 300 million for instance, its total public debt is hovering around US$63 trillion which means every USA citizen owes around US$4,600 comparative to Ghana which is less than US$200.

This means that loans contracted should be put in good use, especially to support the private sector to expand. This would make the private sector to grow and employ more of our youths as the government also  collects more taxes in that regard.

Again, government needs to intensify its efforts to widen the tax base to capture a lot more Ghanaians into the tax net instead of overburdening the existing taxpayer with high tax