The Institute of Fiscal Studies (IFS) has urged government to come out with a robust plan that shows the strategies for reducing the country’s debt stock that is reaching unsustainable levels, in the yet-to-be presented mid-year budget.
The country’s total debt to GDP, according Bank of Ghana data, hit a record high of GH¢200 billion in May 2019, up from GH¢198.4 billion recorded in April this year.
Out of this, the external debt component of GH¢105 billion constitutes more than half of the country’s debt to GDP; though this is significantly lower than the GH¢154.1 billion of external debt recorded in the same period last year.
The current total public debt represents 58.1 percent of GDP. It is against this background that the IFS is calling on managers of the economy to come out with a strong plan that will address this challenge.
“To prevent the debt burden from persisting on an upward trajectory, the government must come forward with a strategy to set the debt ratio on a reducing course as soon as possible. The strategy should incorporate strong revenue policies, in particular, to enable critical expenditures, such as investment spending, to be protected while debt is reduced,” the IFS said in a statement presented by Research Fellow, Lesley Dwight-Mensah in Accra.
Another concern the IFS raised is the exclusion of expenditures it calls ‘extra-budgetary borrowing’—which is government spending not captured in the budget— from the fiscal deficit, as it tends to conceal the actual government spending.
“The surge in extra-budgetary borrowing activities is worrying, as it hinders effective fiscal control, weakens fiscal policy credibility and transparency, and conceals the government’s true fiscal position and indebtedness.
“We believe it is time the coverage of the budget and the government’s financial statement was extended from central to consolidated general government level to fully capture all expenditure and borrowing by statutory funds, local government units, and all other institutions performing the activities of government.
“Presently, the narrow budget and financial statement coverage hinders a comprehensive analysis of overall fiscal policy and its macroeconomic impact and also limits accountability,” the IFS said.
The policy think-tank also touched on government’s persistent revenue underperformance where, in the first quarter of this year alone, revenue target was missed by 17.6 percent, pushing government to cut investment expenditure by 28.7 percent relative to its target. This, the IFS say, government must strengthen the administration and mobilisation of its revenue, especially with regard to non-direct taxes which has consistently seen shortage in since 2017.
“To increase non-tax revenue, it [government] should revise those user fees and charges levied by public agencies whose real values have declined due to little or no adjustment for extended periods.”