Adnan Adams Mohammed
The latest IMF fiscal Monitor Report has pegged Ghana’s total debt stock expressed as a percentage of its Gross Domestic product (GDP) at 62 percent by the end of this year.
The Report, released in Washington DC at the just ended spring meetings, reviewed the economic data of 189 countries based on what their staff have picked up during their mission visits and what governments have also published in terms of expenditure and revenue as captured in their budgets.
David Robinson, Deputy Director of African Department at the IMF commenting on the projection, said the ‘huge infrastructural deficit on the continent has led many African governments to resort to foreign borrowing, hence the high debt to GDP ratio.”
He however cautioned that such monies should be invested in projects that will pay back and contribute to growth. “What we have seen from many countries is that debt to GDP ratio has risen, and a lot of this increase has come in countries where they want to expand infrastructure and public investment. Obviously, many countries have large infrastructure gaps, so taking an approach to close those gaps is actually important and can deliver sustained growth.
“But clearly, there are a couple of steps that are important to keep in mind. When one takes a loan to invest, is that investment done efficiently? Is that investment going to generate a tax-base to be able to repay? Borrowing will continue to happen; it is an opportunity to tap into additional capital and resources, but it has to be done in a very considerate and transparent way.
“The Eurobond and other capital resources are opportunities; they do come with risks and vulnerabilities, but if managed correctly can deliver returns and help kick-start growth and accelerate it,” he told the media during the launch of the Regional Economic Outlook report in Accra.
Meanwhile, the First Deputy Governor of the Bank of Ghana, Dr. Maxwell Opoku-Afari, said government has put in place measures to ensure it maintains fiscal discipline and efforts to boost domestic revenue generation.
“Another point we need to look at is, what is the anchor going forward? Clearly, government has committed to capping overall fiscal deficit at 5 percent. This serves as a strong anchor for debt dynamics.
“But not only that: in addition to the fiscal rule, the requirement is that the primary balance should be in surplus. When the primary balance is in surplus, what it means is that you are not adding to debt. So, these two are very critical to ensuring that our debt dynamics remain on a downward trajectory going forward.”
He added that: “To create a good balance, we need to boost domestic revenue mobilisation to ensure that financing the gap is coming from both domestic and foreign sources. We also need to deepen the domestic market to make it attractive for pension funds and other domestic investors to be able to participate in financing the gap, so that we minimise the risk that comes with over-reliance on foreign participation”.
The projection should mean that in one yea
r, Ghana’s Debt –to-GDP Ratio would increase by 4 per cent. This could be one of the slowest growth in the ratio in a year in recent times.
The development could mean that government might not be taking on too much debt in 2019 or the economy could be expanding more to absorb the nominal increase in the debt numbers.
Government according to Bank of Ghana data released last month showed that it ended last year with a Debt-to GDP of 58 per cent, translating into a nominal value of¢173 billion.
However, some have argued that government decided to spend about over ¢10 billion “in bailout” fueled the huge jump in the Debt-to-GDP ratio for 2018. A careful look at Central Bank’s Data also showed that the total debt stock increased from ¢142.6 billion ending December 2017 to 173.2 in December 2019, representing a 21 per cent Jump last year.
A development that some might say that it could support government’s claim that its debt re-profiling its working or call it debt management strategy.
But, Cathey Pattillo, Assistant Director at the Fiscal Affairs at the IMF, maintain that there is still more that government has to do despite witnessing one of the slowest growth in the debt-to-GDP ratio. She added that government must implement policy measures that would help improve revenue mobilization to finance its rising debts.
Government, on the other hand, has maintained that its debt re-profiling of “extending the yield curve” and taken up long-dated bonds at a fairly cheaper rate to finance the short term expensive debts would go a long way to reduce nominal debts numbers.
It has also spoken about some policy measures that it is undertaking which aid the expansion of the economy, like its “One District-One-Factory Initiative” which would help with the country’s industrialization drive and boost exports.
According to the finance minister Ken Ofori Atta, government is also working to ensure that, these fresh debts are channelled into infrastructure project which would again pay for itself.
In the 2019 budget, the finance minister again noted that; the medium strategy will focus on an appropriate financing mix aimed at “supporting fiscal consolidation without compromising macroeconomic stability”.
The minister also noted that the strategy also envisages the issuance of medium-term domestic instruments to help address cost associated with the financial sector clean-up.
Generally, the government debt as a per cent of GDP is used by investors to measure a country ability to make future payments on its debt, thus affecting the country borrowing costs and government bond yields.
So for some, a high debt to GDP ratio could result in investors asking for high interest or yields, anytime government goes out to borrow. This is because our debts are getting to levels that are equal to the value of Ghana’s economy, which is peg at about ¢270 billion.
According to the 2018 budget, government is planning to set aside about 18.6 billion cedis as interest payments on the loans. Of this amount, domestic interest payments will constitute about 77.8 per cent and amount to GH¢14,504.9 million.