With the precarious nature of the country’s debt situation, the government cannot afford a slip in its implementation of a fiscal consolidation programme that seeks to bring the budget deficit below the 5 per cent of GDP ceiling set in the Fiscal Responsibility Act, an economist at the Institute for Fiscal Studies (IFS), Leslie Dwight Mensah, has said.
“What’s certain is that debt burden reduction is a necessity for Ghana, and should be a policy priority if the country is to avoid walking into a crisis. Government has already launched a fiscal consolidation programme towards this end, but it needs to be strengthened – especially through more robust revenue generation; and there should be no room for backsliding or policy decisions which could undermine the consolidation programme,” Mr. Mensah said in an interview with the B&FT.
He made these comments after the World Bank outlined four elements – debt suspension, debt reduction, debt resolution and debt transparency – as comprehensive debt solutions for countries with high debt vulnerabilities, with Ghana being one of such countries.
Non-participation in DSSI
According to Mr. Mensah, not all elements of the comprehensive debt solution will be feasible considering government’s current position on the Debt Service Suspension Initiative (DSSI).
DSSI is an initiative launched by the World Bank Group and International Monetary Fund in April 2020 to provide temporary liquidity support for low-income countries, following unprecedented challenges posed by the pandemic. Despite being one of 73 countries eligible to partake, the government of Ghana opted against participating in the Initiative; and in the process waived the postponement of some US$560million in debt repayment.
Mr. Mensah said the present diverse composition of the nation’s creditors poses a threat to the debt resolution element.
“The four points apply in general to developing, debt-distressed countries; but in Ghana’s case, some may not be feasible. For instance, government has already decided not to participate in the Debt Service Suspension Initiative (DSSI). Secondly, debt resolution hardly looks probable, especially when Ghana’s creditors are more diffused now than in the past,” he said.
Following its stance, Mr. Mensah charged government to focus on sustaining the country’s economy by implementing all innovative policies under its fiscal consolidation programme.
Public debt stock
The economist added that despite the recovery made in various sectors of the economy from the pandemic, the consequence of failing to raise enough domestic funds – coupled with the ballooning public debt stock, continues to leave capital expenditure woefully inadequate.
“In my view, the biggest challenge is the fiscal situation and how government can reverse course more rapidly toward sustainability. One of the benefits, for example, if Ghana can lower its currently onerous debt service burden, is that resources would be freed to help increase growth-inducing spending such as capital investment,” he remarked.
The nation’s public debt stock shot up by GH¢27.8billion in May 2021 to GH¢332.4billion, a Summary of Economic and Financial Data released by the Bank of Ghana revealed. This is equivalent to US$57.9 billion – about 76.66 percent of Gross Domestic Product.
The Finance Minister, Ken Ofori-Atta, in his last budget presentation noted that government plans to reduce the fiscal deficit from 13.8 percent of GDP in 2020 – including off-budget energy and financial-sector restructuring costs – to 10.8 percent of GDP in 2021, 7.5 percent in 2022 and below 5 percent by 2024.
The fiscal deficit is expected to remain high as government implements its economic support programme – prompting global rating agency Fitch, after the reading of the budget, to express concern that the “slow pace of the consolidation path” outlined in the budget and “the accompanying medium-term fiscal framework” leave Ghana exposed to a heavy debt-service burden and risks of fiscal slippage.
