The Institute of Economic Affairs (IEA) has expressed worry over the current rate of government borrowing and warned that the national debt will grow to about 70 per cent of Gross Domestic Product (GDP) by 2016 and close to 100 per cent by 2020.
That trend, the IEA said, would return Ghana to where it was some 30 years ago — the brink of financial collapse.
In a statement, the IEA said between 2009 and 2014, not long after the International Monetary Fund’s (IMF's) exit, the national debt almost doubled and jumped to 65 per cent.
It indicated that commercial bank interest rates also rose to an alarming rate of between 30 and 40 per cent.
Consequently, it said, the international rating agencies of the world lowered Ghana’s credit rating to "B", equivalent to Junk Bond status.
Culture of financial discipline The statement said under the circumstances, the question that faced Ghanaians was how to inculcate the culture of financial discipline among their elected leaders, knowing very well that the leaders’ inability to manage fiscal affairs had been the bane of the country’s problems.
The IEA, therefore, proposed that Ghanaians should require the adoption of fiscal policy rules with ceilings on annual fiscal deficits.
To be effective, it said, that rule should be incorporated in a legislation to govern the entire public sector financial management system, with well-defined sanctions for violating the law.
“By so doing, our decision makers or political leaders will be guided by a clearly defined legal framework. This is not new; several countries, including Chile, Brazil, the United States of America and countries of the European Union, have adopted such frameworks to protect their economies and citizens from short-term policies for political expediency,” it said.
Reflection of past borrowing The statement recalled that by 1983, Ghana's economy was on the brink of collapse due to its huge national debt and high fiscal deficit.
It said the national debt had reached a catastrophic level of 107.5 per cent of GDP; inflation was 142 per cent and commercial banks had stopped lending to commercial enterprises.
“We had mismanaged ourselves and were on the brink of total failure. We needed help to save ourselves. The leaders of the country had no option but to run to the IMF and the World Bank to seek help to revive Ghana's sick economy,” it said.
The statement said the IMF responded with a battery of conditionalities which put the people of Ghana through a nerve- wrenching exercise in order to bring back the economy from the brink of disaster.
As a result, it said, many national assets, including state-owned enterprises, were sold and many employees were laid off without any explanation, except that the leadership had mismanaged the finances of the country.
The statement said between 1990 and 1991, the painful medicine administered by the IMF and World Bank began to show results.
Painful medicine “Our national debt was reduced to 31.9 per cent of GDP (from 120 per cent); inflation was brought down from 142 per cent to about 10 per cent and interest rates were down to 15 per cent from a high of 50 per cent. In the process, many casualties were created; however, that was the price to pay for the mismanagement of the economy. That was the period of structural adjustment,” it said.
It said not long after the departure of the IMF, the country’s political leadership squandered the opportunity created for economic growth and went back to their old culture.
It said the political leaders borrowed huge sums of money under the guise of development between 1992 and 1995.
As a result, it said, the national debt ballooned to 91 per cent of GDP from 33 per cent in 1992, and indicated that the picture remained gloomy until 1996.
The statement said from 1996 to 1998, there was a glimmer of hope and Ghanaians experienced a slight decrease in the national debt from 78 per cent to about 70 per cent.
Debt overhang Regrettably, it said, the decrease in the national debt was shortlived and by 1999/2000 the painful sacrifices of Ghanaians had come to nothing.
“Our leaders had become addicted to borrowing without limits, to the extent that once again our national debt exploded from 70 per cent in 1998 to 123 per cent of GDP in 2000,” it said.
The statement said extreme hardship on the citizenry reared its ugly head again and indicated that inflation rose to more than 25 per cent and interest rates on loans shot up to between 40 and 50 per cent.
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