IEA raises concerns about Ghana’s huge debt portfolio

The Institute of Economic Affairs (IEA), a public policy think tank, has raised con­cerns about the rate of Ghana’s public debt as of June, this year.

It said with the current total debt of GH¢21.5 bil­lion or $14.3 billion, which represents 40 per cent of the Gross Domestic Product (GDP), “Ghana runs the risk of returning to an unsustainable debt situation”.

Addressing the press as part of the IEA’s review of the economy for the first half of 2011 in Accra yesterday, a Senior Economist of the IEA, Dr J. K. Kwakye, expressed worry that aside the huge loans contracted as of the time of preparing the report, sev­eral large loans were in the pipeline that had not even been factored into the figures.

He said the only way out was for the country to seriously rationalise future borrowings in particular so that the loans would be applied to high economic­-return projects to avoid going back into the abyss of a HIPC country.

Expatiating further, he said Ghana’s total domes­tic public debt increased from GH¢8.3 billion (or 7 per cent of GDP) at the end of December, 2010 to GH¢10.8 billion (or 20.1 per cent of GDP) at the end of June, 2011.

According to Dr Kwakye, GH¢5.4 billion (or 50 per cent) of the total debt of GH¢10.8 billion at the end of June, 2011 was in medium-term notes and bonds, GH¢3.5 billion (or 32.3 per cent) in short ­term bills and notes and GH¢1.9 billion (or 17.7 per cent) in long-term stocks.

He explained that Ghana’s debt was substantially reduced after declaring itself HIPC in 2006, but since then the pace of borrowing had sustainability increased, this time largely in the form of commercial debt.

Regarding the budget, he said recurrent expendi­ture was higher-than budgeted, influenced largely by personal emoluments and subventions, while on the other hand, capital expenditure fell far short of the budgeted amount.

He said the level and trend of personal emolu­ments, in particular, were worrisome, when viewed against the backdrop of ongoing migration of work­ers of government ministries, departments and agen­cies onto the Single Spine Salary Structure, as well as the yet-to-be paid 20 per cent increase in salaries awarded to public workers in January, 2011 but backdated to September, 2010.

Ghana’s increasing wage bill, Dr Kwakye said, was squeezing important development and social expenditure, adding that planned reforms of the public sector, including its downsizing had continued to     be shelved.

Dr Kwakye noted that a way must be found to carry out the reforms in the public sector to bring it to the “right size”, while at the same time address­ing potential fallouts, including possible employment losses.

He added that Ghana’s economy had been described as the fastest growing in the world with the new oil production as the main driving force and explained that as oil was factored into the calcula­tions, the growth rate in subsequent years should be lower.

He said spreading growth to other sectors of the economy should be a policy priority, pointing out that while oil-related activities could generate jobs, oil production in itself may not generate many jobs because of it being a highly capital-intensive enclave activity. “If the high rate of unemployment in the country is to be addressed, equal attention has to be paid to the non-oil sector.”

“This would avoid the ‘Dutch Disease’ that tends to plague natural resource-rich countries, as other sectors are ignored to the detriment of the entire economy,” he added.

Source: Daily Graphic

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