Prof Gatsi proposes practice of Islamic Banking to reduce Ghana’s debts
Professor John Gatsi, Dean of the Business School of the University of Cape Coast (UCC), has opined that the practice of Islamic Banking in Ghana can help reduce the country’s debts and significantly impact its debt-to-GDP ratio.
Speaking to norvanreports in an exclusive interview on Thursday, February 29, 2024, Prof Gatsi averred countries that practice Islamic Banking have an average debt-to-GDP ratio of 40%.
“Islamic Banking aids practicing countries with their public debt management leading to reductions in their public debts as the debt-to-GDP ratios of such countries average 40%. Countries such as Saudi Arabia, UAE, and Algeria that practice Islamic Banking have debt-to-GDP ratios of 23.8%, 24.2% and 32% respectively,” he remarked.
“Islamic Banking can help reduce Ghana’s debts, there should be a rethinking of the country’s debt management structure to include other financing sources such as Islamic Banking, sukuk, and others,” he added.
According to Professor Gatsi, Ghana’s debts continue to increase because of the country’s reliance on the Eurobond market which comes with the burden of interest repayments.
Adding that, the misallocation of Eurobond proceeds and the use of the proceeds on projects that are not self-financing, also contribute to the country’s growing debts.
However, unlike the proceeds acquired from the Eurobond market, funds from Islamic Banking instruments are not permitted to be misallocated and are also strictly used in revenue-generating projects.
“Islamic Banking is structured in a way that, if funds are invested in a project, the project itself generates revenue to repay for the amount invested and also revenue to be shared. So you don’t have the burden of going to look for money to pay bondholders.
“Islamic Banking is mainly involved in projects that are self-financing and pays for itself and gives lower burden of debt,” he noted.
Recent data from the Bank of Ghana indicate that Ghana’s debt-to-GDP stands at 66.4%.
In monetary terms, that amounts to some GHS 567.3 billion
External debt accounted for GH₵326.7 billion (US$29.4 billion), while domestic debt accounted for GH₵240.6 billion.
