Country Director of the World Bank, Pierre Frank Laporte, has advised government to ‘turn the stop-cock valve’ in order to prevent the public debt from rising further – saying the current situation is worrying.
His comments come on the back of the country’s total public debt hitting GH¢304.6billion as of March 2021, rising by GH¢67.9 billion over the same period in 2020 – a situation Mr. Laporte fears may get worse if government does not act quickly by borrowing responsibly and trying hard to increase domestic revenue generation efforts.
“Before COVID-19, Ghana’s debt to GDP ratio was below 70 percent, which was manageable. But now, at 78 percent of GDP, it is getting to a point where the description of Ghana is a country at high risk of debt distress. What government has to do now, in our view, is stop the debt from escalating further.
“First, by having a prudent approach to borrowing. Borrow responsibly; borrow at the right rate and borrow at the right levels. But also, debt to GDP is a ratio; and so if you increase your denominator, your ratio will go down. So, to the extent that Ghana can accelerate growth, the debt to GDP will go down.
“Also, by lowering the deficit. Why do you borrow? Because you don’t have enough revenue. By raising your revenue base, it allows you to lower your deficit. Ghana’s revenue to GDP at 12 percent is too low. Ghana can do better, and its good governments which recognise that. Recently, some taxes were introduced to address the problem.
“Even though nobody is happy when taxes are raised or introduced, we believe that with raising taxes further or efficient collection of taxes, or streamlining tax exemptions, we know Ghana will improve the debt situation. So yes, we are concerned [about the debt situation], and as an economist I think government can do better,” he said during a press conference in Accra.
The statistical bulletin data published by the Bank of Ghana show a very worrying trend, as just two expenditure items – interest payment and employee compensation – guzzle all revenue generated in the country. The two items overtook money generated in the domestic economy by 24.4 percent in first-quarter of the year.
According to the data, the country generated GH¢12.5billion from the domestic economy as of first quarter of 2021, but spent GH¢8.2billion on interest payment and GH¢7.3billion on compensation of employees, taking the total figure to GH¢15.5billion.
This simply means government had to borrow in excess of GH¢3billion to cover these two basic obligatory expenditures. Besides these two, other expenditures of government amounted to GH¢23.4billion in the period under discussion – pushing government to borrow more than GH¢11billion to cover all its expenditure incurred in the first quarter.
Several analysts and multilateral organisations, among others, have persistently urged government to expand the tax base of the economy in order to increase domestic revenue for government expenditure, rather than resort to expensive borrowing. Tax revenue generated in the first quarter of 2021 recorded just GH¢10.4billion.
The International Monetary Fund (IMF) has told government to prioritise control in spending and generating more revenue in order to reduce the country’s debt burden, which has been exacerbated by the pandemic’s onslaught.
Former finance minister, Seth Terkper, has also advised that broadening the tax base should not only be about targetting the informal sector or taxing the old economy: -i.e., sectors that have always been the main pillars of the economy, but also focus on new but thriving sectors which are not adequately captured in the tax system.