You can’t rest after just a year of good growth – Economist tells Ghana

Albert Zeufack

Managers of the Ghanaian economy have been advised not to be complacent just because the country has seen a year of significant growth in 2017. This is because the growth was powered by largely unsustainable factors such as commodity prices.

Last week, the Ghana Statistical Service rebased the economy and presented new data on how the Ghanaian economy has fared over the past year. The data shows that, the economy recorded an average growth rate of 8.1 per cent in 2017 up from 3.7 per cent recorded the previous year.

Ghana’s growth in 2017 has been touted as one of the highest the continent of Africa has seen in 2017 – growing well above the average rate of 2.7 per cent recorded for the entire sub-Saharan Africa. This growth was powered largely by a growing oil sector and rising oil prices on the international market.

But the World Bank’s Chief Economist for Africa, Albert Zeufack, in responding to a question on Ghana’s economy during the launch of the October edition of the Africa’s Pulse, a bi-annual analysis of the state of African economies by the World Bank, cautioned Ghana not to rest as the growth is largely driven by commodity prices which are not sustainable.

“Ghana is estimated to grow around 8.1 per cent in 2017 – and this is one of the fastest growing rates on the African continent. And from our analysis, this certainly is due to the growing oil sector, growing oil exports with favourable prices.

But also you know, a number of reforms being implemented in the country. But again we will want to highlight how volatile growth led by commodity prices is,” Mr Zeufack said, adding, “so we can’t rest on our laurels the moment we have just one year of good growth.”

The report also uncovered that, there are changes in the composition of the debt Africa is contracting and that comes with new risks in debt management and sustainability.

Public debt, the report says remains high and continues to rise in some African countries. And also, US dollar denominated bonds are bound to suffer valuation effects as a result of the appreciation of the US dollar in recent times.

“On public debt, we need to emphasize not only the level of debt but change in composition of debt. Debt is now driven by private sector led – by market driven debt,” says Zeufack.

“Sovereign debt issuance on the Eurobond market just in the first quarter of 2018, African countries have raised more Eurobonds than the whole year of 2017. So it is important to highlight that the overall composition of debt is changing. And I think the key issue is debt sustainability

We are having new partners that fund that debt including China. Debt in itself is not bad. It is bad when it is wasted. When it is invested in inefficient projects”, he said, adding that, China presently funds about a third of Africa’s total debt stock.

Mr. Zeufack advised that debt be put to good use to help in powering growth in the future. He also called on Africa governments to move toward concessionality in loan discussions because of its affordability,  arguing that acquiring non-concessional debt  to fund long term projects like infrastructure makes it difficult for countries to pay back – making that debt unsustainable.

“So if we are contracting non-concessional debts to fund long term projects like infrastructure – as we have seen for Eurobonds, then it’s going to be difficult for our countries to sustain that debt which is basically paying back that debt because it will not probably have had the time to generate the returns to service itself”, he added.

He also said, “When we issue bonds in the market, we need to know already how to manage those new risks that come with it. When we enter new debt for infrastructure, we need to basically understand all the terms and ensure if possible that debt is in concessional terms which is low interest.”

A core message of the October edition of the Pulse 2018 is how to equip African countries to manage the new risks posed by a changing debt composition in order to ensure debt sustainability.

By Bismark  Elorm Addo
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