Economic Governance Platform attributes Ghana’s high debt to these six reasons
Describing the country’s debt as inter-generational, the Economic Governance Platform (EGP), has ascribed the nation’s rising debt levels to six key factors.
According to the Economic Governance Platform, debt is already placing a significant burden on Ghana’s economy with the country at risk of falling back into an extended debt trap.
Ghana has been classified by the World Bank as a country at risk of high-debt distress and cautioned by the World Bank and other recognised global institutions such as the International Monetary Fund (IMF), Fitch Ratings among others on the need to reduce its debt levels and improve on its domestic revenue mobilisation to enhance debts repayments and ultimately drive down its total debt stock.
However, government has paid no heed to such caution as the nation’s debt stock continues to rise reaching the current levles of Ghs 332 billion representing 76.1 percent of the country’s Gross Domestic Product (GDP).
The nation’s current unsustainable debt level has resulted in liquidity challenges for the government with international credit agency, Fitch Ratings, asserting that the country may not have any other option than to soon opt for an IMF financing programme.
Fitch notes that, the medium-term outlook for Ghana’s finances remains challenging as the country’s problems have been exacerbated by the Covid-19 pandemic.
Revenue, the agency asserts, remains structurally low with very high interest costs thereby projecting general government interest expense at almost 47% of revenue in 2022 which is well above the median for ‘B’ rated sovereigns of 11%.
According to Fitch, government’s current fiscal consolidation strategy offers a path to debt sustainability, but the country’s gradual pace of deficit reduction leaves it vulnerable to slippage risks.
In a study recently conducted and commissioned by the Economic Governance Platform on the country’s debt, the Group asserted that Ghana’s debt stock can mainly be attributed to its dependence on primary commodities – this is because not enough foreign exchange is derived from its exports to meet government’s expenditure and finance development.
According to the Group, the dependence on commodities was the central factor underlying a debt crisis that was common to many developing countries in the 1980s through to the 1990s.
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It notes that when global commodity prices fell at the start of the 1980s, it affected the foreign exchange earnings of countries that depended on the commodities to pay their external foreign currency-denominated debts adding that this rapidly increased the size of foreign debt payments which could only be paid out of exports earnings.
Currently the country’s economy, the Economic Governance Platform asserts, remains dependent on the export of just three primary commodities – gold, cocoa and now oil, which together make up over 80% of Ghana’s exports.
Aside the country’s high dependence on commodities which is contributing to the country’s rising debt, failure to diversify away from commodities as a major base of production, corruption, unproductive use of borrowed money among others also contribute to the nation’s huge debt.
“The high debt crisis can be put down to a number of factors which include the perennial structural issues, stemming from the failure to diversify away from commodities as a major base of production, corruption and the inability of the Ghana government to raised enough revenues even though the opportunities look positive, productive use of borrowed money and the unpredictable global commodity prices, particularly gold and oil,” stated the Group.
Meanwhile, the Group has also stated that for the country to return to the path of debt sustainability this year – 2021 – it would have to grow by an additional 3.5% over the projected 5% for this year.
The herculean projected growth rate for the country is based on the country’s sustainability index of 3.5 percent for this year.
“With the measured sustainability index of 3.5% in 2021, Ghana requires to grow the economy at 3.5% over the current levels of projected 5% to be able to return to debt sustainability,” asserts the report commissioned by the Group.
Speaking during a presentation at the commissioning of the report, Policy Analyst with the Integrated Social Development Centre (ISODEC), Felix Anaba, affirming the country’s inability to grow at the targeted rate of 8.5 percent for this year, however, noted that with additional growth of 3.4 percent over the medium-term with debt levels remaining constant, Ghana can return to the path of debt sustainability.
“At current levels of growth, Ghana must increase its annual GDP growth by about 3.4% annually to be able to return to debt sustainability,” he stated.
