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Economists in Ghana are worried over the country’s ability to forestall a further rise in the public debt stock in the wake of government’s numerous development initiatives (election promises) amidst low commodity prices and resulting revenue shortfalls.

They have described as ambitious recent projections made by the International Monetary Fund (IMF) that Ghana’s Debt-to-GDP ratio will decrease to 66.1 per cent by the end of 2018.
Meanwhile projections made by the Fund for Nigeria for end of 2018 are 22.8 per cent, Côte d’Ivoire (48.3per cent), Burkina Faso (37.7 per cent) and Kenya (56 per cent).

Economist, Dr Lord Mensah says the 66.1 per cent ratio for Ghana is too ambitious and cannot be achieved.

“Government must spend to keep the economy running even; it will have to raise revenue and borrow to execute the national budget which has its flagship development programmes and it will be impossible to execute the programmes without spending,” he told Business Finder.

Classification of Energy Bond
In a bid to avoid a further upsurge in debt levels, government has disagreed with the IMF’s suggestion for the energy bond to be classified as part of the country’s national debt stock which would be a departure from government’s traditional classification approach since assuming office in January this year.

Ghana’s debt crisis, worst amongst peers

According to the Bank of Ghana, the country’s debt increased by a whopping GH¢33billion between July 2016 and same period this year, at ¢139 billion representing 68.6 percent debt-to-GDP ratio. Meanwhile government in the 2017 budget statement projected an end year debt-to GDP ratio of 70 per cent (even though the IMF puts it at 70.5 per cent).

For end of 2017, Côte d’Ivoire’s debt-to-GDP ratio is 48.7 per cent, Burkina Faso (36.5per cent), Nigeria (21.3per cent) and Kenya (56.2 per cent).

Revenue shortfalls pose major challenge

Economist Dr Raziel Obeng-Okon points out that the under-performance of revenue targets vis-à-vis rising expenditure levels pose challenges to fiscal consolidation efforts and “this may subdue the expected growth.”

Government has been very bold in kick-starting some of the major projects such as free Senior High School (SHS) programme, Planting for Food and Jobs, restoration of allowances to teacher training students, 1-district, 1-factory, etc.

According to Dr Obeng-Okon, given the revenue shortfall however, government needs to prioritize its developmental agenda because “it would be a challenge to fully execute all the initiatives in the national budget without restraints on some expenditure items.”

Government’s fiscal consolidation process will not be without a challenge as expenditure levels soar from the second half of the year, he adds.

IFS on Revenue Mobilisation
The Institute for Fiscal Studies (IFS) notes that Ghana’s weak domestic revenue mobilization has become the key fiscal challenge and risk, the root cause of fiscal imbalances in the country, and the biggest single threat to the achievement of government’s development objectives.

Exports not impressive

Ghana’s major export crops have experienced significant declines in their prices especially for cocoa and gold.
Dr recalls that from the beginning of 2017, cocoa and gold have recorded significant price reductions and have thus impacted negatively on our earnings.
At the same time, crude oil prices have shown very significant price increments impacting negatively on our imports.
Thankfully, our oil exports have exceeded our oil imports in the last two quarters. Thus, yielding a positive trade balance for the first 3 quarters which is good for the economy.

Even though government has not been able to achieve its revenue targets, the prospects for medium term growth looks positive on the heels of higher oil production volumes, an improving private sector and policies aimed at boosting agriculture and manufacturing activities.

Govt must grow GDP

Notwithstanding, reducing the debt levels is only possible if the GDP grows at a relatively higher rate than the growth of debt stock.

It is important to note that the level of Debt-to-GDP ratio is influenced by a number of factors such as interest rates on debts, availability of financial assets, exchange rate regime, tax revenue to GDP ratio, and other contingent liabilities.

To this end, the government ability to create a stable financial environment and increase the productive sectors of the economy may allow borrowing more without increasing the Debt-to-GDP ratio and this may not happen in the short term.

Government’s expenditure

The areas which government could manage to restrain include capital expenditure, grants to other governmental units and cutting down on some social benefits.

Again, government may have to prioritize the payment to contractors such that it would not impact negatively on very important sectors of the economy. Notwithstanding, restraining capital expenditures may impact negatively on infrastructural projects while cutting down on grants to governmental units may lead to projects completion difficulties for the government ministries, departments and agencies.

Government’s borrowing

“Any borrowing that does not grow the country’s productive sectors or GDP in the immediate future is consumption borrowing and that is injurious to the economy. Indeed, borrowing to consume on recurrent expenditures as much as possible must be curtailed,” Dr Obeng–Okon advises.
Currently, Ghana pays more than 6 per cent of its GDP in interest payment which is worrying since this diverts resources from capital expenditures (investment) to recurrent expenditures without growing the economy.

Additional borrowing need not add to the Debt-to-GDP ratio of the country if the GDP grows at a relatively higher rate than the growth of debt stock.

Government’s ability to create a stable financial environment and increase the productive sectors of the economy may allow borrowing more without increasing the Debt-to-GDP ratio.
Government has no choice but to combine sound economic management practices to create macro-economic stability in other to contain further borrowing which is required to refinance the country’s existing debts as well as other critical expenditure items.