Government uses a whopping 30 percent of its revenue to pay debt, a report by the Institute of Economic Affairs (IEA) has revealed.
“Ghana is losing 30 percent of its government revenue to debt repayment, paying loans which were often made speculatively based on high commodity prices and carrying whopping rates of interest,” the report titled ‘Africa is not poor, we are stealing its wealth’ said.
Currently, the country’s debt to GDP stands at GH¢145billion, representing 60 percent – a decline from 69.8 percent recorded at the end of 2017.
According to the Bank of Ghana, as of the end of February 2018 domestic debt stood at GH¢68.2billion representing 47 percent, while the external debt component is GH¢76.8 billion – 53 percent of the debt.
Meanwhile, government has targetted total revenue of GH¢51billion at the end of 2018. This implies, per the IEA’s report, GH¢17billion of that amount will be used to finance debt – leaving the economy with just GH¢34billion.
However, total expenditure and arrears clearance is also expected to hit GH¢62billion in 2018 – making the GH¢34billion woefully inadequate for managing the economy.
The country’s mounting debt situation is getting so serious that various experts and economic analysts have expressed worry, urging government to take steps that will keep it in check.
The Institute for Fiscal Studies (IFS), a policy think-tank, has said that of every cedi collected in taxes by the Ghana Revenue Authority (GRA) 42 pesewas is used to pay interest on the country’s debt.
In a caution to government to quickly arrest the situation – which has gone from bad to worse since 2008 – the policy think-tank added that interest costs are now higher than domestic-financed capital expenditure, and are threatening to equal or even overtake wages and salaries.
“In fact, 2017 was the fifth successive year that total interest payment was larger than total domestic-financed capital expenditure – suggesting that interest payments will probably be financed through additions to public debt or at the expense of other key government expenditures,” the Executive Director of the think-tank, Prof. Newman Kusi, said in March.
In 2017, interest payments ballooned to 25.8 percent of government expenditure, becoming a major factor behind the country’s fiscal deterioration…besides wages and salaries; and interest payment on public debt was equal to 41.8 percent of total tax revenue.
Former Finance Minister, Seth E. Terkper, has also waded into the country’s debt issue, urging government to continue focusing on building a Sinking Fund with oil cash with a view to retiring maturing debts.
In his view, the Sinking Fund will help the economy reduce the debt stock, interest rates as well as improve overall yields and sovereign ratings. He therefore expressed his concern that the Fund has been allowed to accumulate over US$800million since 2017 without utilization, as was the case in 2015 and 2016.
“We must continue to build the Sinking Fund with the additional crude oil and gas revenues from the Sankofa and Tweneboa Enyenra Ntomme (TEN) fields in order to make our economy’s fast-growing public debt more sustainable,” he said.