Government must be conservative in its expenditure approach for the next six months as the finance minister prepares to present a mid-year budget to parliament to avert Ghana’s debt stock from reaching unsustainable levels, that is an advice from economist Dr. Lord Mensah.
According to him, borrowing from the international market may attract high interest rates due to the ravaging effects of COVID-19 on global economies. This, he warned could push the economy into a highly debt distress position if government does not manage its appetite for borrowing but go ahead to accept loans with high interest rates.
Already, the International Monetary Fund (IMF) has predicted that Ghana’s debt stock may reach 81.5% of Gross Domestic Product (GDP). Data released by the Bank of Ghana shows that Ghana’s total public debt stock reached an all-time high of GH¢304.59 billion in May 2021, representing 70.2% of GDP.
Cautioning against a huge gap between expenditure and revenue, Dr. Mensah expressed worry that interest payment on government loans alone has reached alarming levels, taking away over 40 percent of government revenue.
Dr. Mensah cautioned that the current economic circumstances provide an opportunity for the finance minister to be frugal in the mid-year budget presentation to prevent fiscal slippages.
“The expectation was that at this time we will be conserved as much as we can. Ability to raise money in our environment is a problem. If you look outside to raise funds, our debt level is going up. We must cut our coat according to our size,” he stressed.
Dr. Mensah stated that government must put in measures to enhance the country’s export to generate more foreign income to offset the loans. He observed that there must be shift from excessively borrowing to investing in critical areas of the economy to build the infrastructural base of the country.
On domestic revenue mobilisation, Dr. Mensah proposed that government repackage existing taxes by making sure all leakages are blocked. He stated that there must a deliberate effort on the part of the finance minister to improve domestic revenue collection target to wean the country off borrowing. He however maintained that the economic atmosphere is not appropriate to increase taxes or impose new ones since such a move will burden Ghanaians.
Components of Ghana’s debt levels
Figures in the Bank of Ghana’s Summary of Economic and Financial chart released in May show that the external debt alone stood at GH¢141.billion while the domestic debt was however higher at GH¢163.6 billion.