The Institute of Fiscal Studies (IFS) is predicting doom for Ghana’s economy as its debt crisis seriously worsens.
This comes barely five months after the Finance Minister Ken Ofori-Atta declared during his presentation of the 2018 budget that the government through prudent management of the economy successfully reduced the country’s debt burden.
“This was achieved as a result of a reduction in the fiscal deficit and a policy of debt re-profiling,” he told Parliament on November 16, 2017.
The debt to GDP ratio declined from 73 percent at the end of December 2016 to 68.6 percent at the end of September 2017. Also the annual average rate of debt accumulation of 36.0 percent over the last four years declined to about 13.58 percent in the last 13 months.
As at May 2017 per the breakdown of the debt numbers by the Bank of Ghana (BoG), Ghana’s total public debt reached GH¢137 billion, increasing by GH¢9.4billion in three months from GH¢127billion. Currently it is said to be hovering around GH¢140billion.
Speaking at a round table discussion Tuesday, March 13, 2018 on the theme: “Ghana’s growing Public Debt- Implications for the Economy,” the Executive Director of IFS Prof. Newman Kusi disclosed that Ghana faces a high risk debt distress or increased over all debt vulnerability as the public debt situation “seriously worsens.”
According to him, the situation is already placing significant burden on the economy and society, and that the country is at a risk of falling back into an extended debt trap with economic stagnation and possible increases in poverty rate leading to a possible failure in its implementation of the Sustainable Development Goals.
He said the total public debts as a percentage of GDP dropped from a high of 113.1 percent in 2000 to 26.2 percent in 2006 driven by the HIPC and NVRI relief.
“But by end 2016 the debt to GDP ratio has risen to 73.3 percent and moving towards the ratios recorded during the pre-HIPC period. As a result, total public debt service to revenue has not only assumed a rapidly increasing path but has breached its indicative long term threshold,” he said, as 41 pesewas of each cedi that the government mobilizes as revenue is being spent to “pay interest on our debt.”
Debt service, according to him, now absorbs a huge part of domestic revenue, leaving the country vulnerable to shocks.
“The country has fallen into a debt trap as real interest rate continues to surpass GDP growth which has forced the country to continue committing more of its tax revenues to service debt,” he stressed.