Public debt restructuring paramount – economist

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The futility of unconditional debt support

As engagements continue with the International Monetary Fund (IMF), an economist and Fellow with the Centre for Social Justice (CSJ), Dr. Theresa Mannah-Blankson, has called on managers of the economy to as a matter of urgency initiate a conference with the three primary classes of creditors – multilateral, bilateral and commercial (private) – to lay proposals for restructuring the nation’s debts.

While acknowledging that it “will not be easy”, she reasoned that an open conversation around scale of the problem, coupled with a mixture of proposals around changing the maturity length of existing debt, and coupon as well as interest rate adjustments, will afford government some fiscal space in the short-term.

“Our creditors are not just going to accept anything we say; they are obviously going to look at the situation that is presented to them to make a decision,” Dr. Mannah-Blankson cautioned when she spoke remotely on the topic ‘Restructuring Ghana’s Debt and Options for Sustainable Economic Recovery’ at a public forum organised by the Economic Governance Platform (EGP) and Advocates for Christ.

Dr. Mannah-Blankson indicated that approximately, US$500million is due for redemption on the international capital markets within the next six months. More worryingly, some US$7billion is due domestically in the coming 18 months – of which US$2billion is held by offshore investors – and will further worsen the local currency’s plight.

The economist added that without a meaningful restructuring of the economy in addition to stringent enforcement of watertight legislation, the country will be back at the Bretton Woods institution most likely within the approximately four-year cycle.

To prevent that outcome, she proposed institutional reforms including a legally-backed limit on the level of borrowing, particularly as it relates to revenue-generated and Gross Domestic Product (GDP).

Other measures put forth by the CSJ Fellow include making a commitment toward the rationalised convergence criteria for a single, common currency within the sub-region; and exact implementation of the Fiscal Responsibility Act, with a medium-term target of 3 percent as limiting losses through tax exemptions.

Self-imposed austerity

Offering divergent views, Economist and Associate Professor of Economics at the Institute of Statistical, Social and Economic Research (ISSER), Prof. Godfred Charles Ackah, argued that Ghana’s level of debt is not unusually high when compared to historical levels across the globe.

He suggested that a self-imposed austerity posture, which has limited the ability of the central bank to finance government expenditure, has resulted in disproportionate external borrowing… which is costly.

Citing sovereign debt data from the IMF beginning in the 1880s, the economist suggested that the comparatively higher debt-to-GDP ratio of more developed economies – approximately 50 percent versus 20 percent in developing nations – was directly responsible for their growth.

Currently, Japan leads in this metric with approximately 250 percent, followed by Italy (154.8 percent), the United States (133.4 percent), Spain (120.2 percent), France (115.8 percent), Canada (109.9 percent) and Britain (108.5 percent).

According to Prof. Ackah, the success of these otherwise heavily-indebted nations can be traced to their central banks holding much of their debt.

“The problem is that, in Ghana, external bodies like the IMF say the central bank should have zero financing of government. To what purpose is that? The central bank which prints its own money should not support the government?  We have also passed a fiscal responsibility act that has pushed government into the international market to fix things,” he explained

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