"Freeze on borrowing: Ghana becoming highly indebted" - Economist

The Government of Ghana must put an immediate freeze on new borrowing and strategise towards tackling existing debts, as the country’s public debt stock inches closely to the critical 70 percent threshold, Economist Kwamena Essilfie Adjaye has advised.

Ghana’s public debt stock is now Gh? 76.1 billion, according to the latest figures revealed by the Monetary Policy Committee of the Central Bank.

In November last year, the Bank of Ghana said the country’s public debt stock, as of August, stood at GH?66 billion.

According to the MPC, the new figure represents 67% of the total value of the economy, just three percentage points from the critical 70 percent threshold which the Bretton Woods Institutions frown upon.

Speaking on Morning Starr with Kafui Dey about the effects of the rising debt stock on Ghana’s economy, Mr Adjaye said: “It’s going to make it difficult for us to operate in the public sector.”

“The debt service burden will naturally be increasing,” he added, saying: “I think that we have passed the point where we need a moratorium on new debt.

“We need to take stock. We’ve gone through about two years of almost every other week, [having] a new debt, domestic programme or new foreign debt.

“We need to have a moratorium. We need to look closely at how we are going to service the existing debt, because the debt service burden is becoming really serious” as far as domestic and foreign debts are concerned…let’s stop that,” Mr Adjaye said.

Mr Adjaye, who belongs to the Ghana Growth Development Programme (GGDP) – a non-partisan group of Economists, said currently, “We are not able, easily, to service our debt and it’s going to get more difficult if we do not place a moratorium on new debt.”

Pressed further by Kafui Dey if Ghana was, once again, becoming a ‘highly indebted poor country’ (HIPC) – a programme put together by the Bretton Woods Institution through which debt relief was engineered for countries that fell into that category – Mr Adjaye, who wrote the briefing paper on HIPC in March 2001, said: “We are not exactly poor, but we’re becoming quite highly indebted.”

At a recent press conference by the Minority in Parliament in early January this year, Minority Leader Osei Kyei Mensah-Bonsu said ballooning of the public debt stock from GH¢9.5billion as of December 2008 to the current figure of GH¢70.1billion means each Ghanaian, including born today owes GH¢2,800.

He added: “Last year at this time the burden for every Ghanaian was GH¢2,000. One year on, the debt per capita has increased by 40%, no thanks to “yentie obi ara” government.

“The 2008 debt stock of GH¢9.5billion represented 33% of GDP. Today, 6 years into the Mills-Mahama administration the GH¢70billion debt stock is almost 7½ times or indeed 636% increase in the debt stock. The GH¢70billion figure means our debt stock has risen to 60.8% of GDP as at September 2014.”

The MP for Suame lamented that Ghana is “over-borrowing and astronomically increasing our debt pile up which has crossed the 60% threshold and that should be extremely worrying as it shall, before long, plunge us into the league of countries with high risk of debt distress.”

“These represent the gory circumstances of our economic fundamentals and if these in the eyes of President Mahama, represent bright medium-term prospects of the economy which must be secured, then we need God Almighty to rescue us.”

Also in November last year, former Deputy Governor of the Bank of Ghana Dr Mahamudu Bawumia who is also the Running Mate of the main opposition New Patriotic Party’s Flagbearer Nana Akufo-Addo warned that the “reckless” borrowing of the current government could plunge the country into a heavily indebted poor country status again.

The heavily indebted poor countries (HIPC) are a group of 39 developing countries with high levels of poverty and debt overhand which are eligible for special assistance from the International Monetary Fund (IMF) and the World Bank. Ghana got debt relief from the programme during the Kufuor administration.

According to Bawumia, the administration of the governing party has borrowed money equivalent to US$27 billion which has increased Ghana’s debt stock by 591 percent in the party’s six years of governance.

At the time, he said the country’s debt stock had been increased by an average of 98 percent every year for the past six years.

“It’s really a frightening rate of accumulation of debt by any standard measure,” Bawumia said.

“On this track, Ghana is clearly on the way back to unsustainable debt levels that pushed us to HIPC. This is a worrying development because Ghana received HIPC relief just 10 years ago after a similar debt binge by the previous NDC government.

“If the current borrowing binge continues, it will only be a matter of time before the international rating agencies will classify Ghana as a country with a high risk of debt distress,” Bawumia warned.

He said: “The accumulation of debt by this NDC government for the last six years has quite frankly been reckless. The interest payment on this debt in 2014 alone is four times Ghana’s oil revenue. In 2015, the interest payments alone will amount to Ghc9.5 billion,” which he said is equivalent to “Ghana’s total debt stock in 2008.”

Also, an Economist with the Institute of Economic Affairs (IEA), Dr J.K Kwakye and the Think Tank this week warned that Ghana risks becoming, once again, a highly indebted poor country (HIPC) if frantic and immediate measures are not put in place to end the trend of high borrowing by government.

The Institute has cautioned the Government to work towards sealing the leakages that have given way to high borrowing in the public sector.

“We cannot go on the same trajectory: we need to take serious measures to rein in…the borrowing. HIPC means you are in [a] hopeless situation already, we don’t have to get there”, Dr. Kwakye warned.

The IEA fears Ghana could return to the economic doldrums of the early 1980s, if the situation is not handled properly. According to the IEA, by 1983, Ghana's economy was on the brink of collapse due to its huge national debt and high fiscal deficits.

The national debt had reached a catastrophic level of 107.5% of GDP; inflation was at 142%, and commercial banks had stopped lending to commercial enterprises.

Dr. Kwakye told Ultimate Breakfast Show host Prince Minkah Monday that Government, civil society organisations and individuals need to ensure the trend is reversed as soon as possible.

The IEA Economist has suggested that there should be a legislation “to govern the entire public sector financial management system with well-defined sanctions for violating the law.”