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
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