High public debt levels to constrain GDP growth, poverty reduction efforts – First Deputy Governor
First Deputy Governor of the Central Bank, Dr Maxwell Opoku-Afari, has said there is the need to control the country’s exposure to high debt levels to avoid constraining the country’s GDP growth and poverty reduction efforts.
Ghana’s public debt per official data released by the Bank of Ghana (BoG) currently stands at 77.1 percent of Gross Domestic Product (GDP) translating into some Ghs 334 billion in monetary terms.
The country’s total debt stock exceeds the 70 percent required threshold making it at risk of debt distress.
The high debt level restricts government from making investments in the productive sectors of the economy to drive growth since majority of government’s tax revenues are rather used in servicing debts.
“We need to be conscious of the fact that we also faced a major constraint—an optimization problem requiring us to control total public debt exposure to ensure high debt levels do not constrain growth and poverty reduction efforts,” said the Dr Opoku-Afari.
The First Deputy Governor made the assertion while delivering a public lecture at the University of Ghana’s Business School (UGBS) on the topic Re-thinking Development Financing: Macroeconomic management when the Love is gone.
The International Monetary Fund (IMF) has projected Ghana’s total debt stock to hit 86.6 percent in 2025.
According to the IMF, Ghana’s debt stock is expected to continue on an elevated path reaching 81.5 percent this year, 83.2 percent in 2022, and further to 84.8 percent, 86.0 percent and 86.6 percent in 2023, 2024 and 2025 respectively.
The country’s debt stock will however, reduce by 1.1 percentage points in 2026, ending 2026 at 85.5 percent.
Speaking further at the public lecture, the First Deputy Governor opined that a tax revenue to Gross Domestic Product (GDP) ratio of 25 percent is needed to give fiscal comfort to government to be able to undertake development projects in the country, particularly development projects under the Sustainable Development Goals (SDGs).
According to the First Deputy Governor, Ghana’s tax revenue to GDP ratio which has averaged 12 percent over the last 2 decades clearly highlights the many inadequacies in the country’s tax mobilisation efforts calling for new domestic revenue mobilisation measures.
“The tax to GDP ratio for Ghana has averaged 12 percent over the past two decades, and is lower than Africa’s average of about 17 percent in 2017. This also falls short of the 25 percent of GDP needed to give fiscal comfort and to finance development projects under the SDGs. This clearly highlights the inadequacy in our tax effort, calling for new measures, in particular, targeting broadening the tax base, upgrading tax policies, and revenue administration systems to mobilize more domestic revenue,” stated Dr Opoku-Afari.
“As our tax to GDP ratio increases towards the Africa average and eventually to the 25 percent, the needed fiscal space to finance our infrastructural deficit will be created. And, this is one of the most sustainable (non-debt-creating) way of financing and closing our infrastructure gap,” he added.
