Domestic debt profile worrying – Dr. Okonjo-Iweala

Nigeria’s Minister of Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala, has observed with worry the country’s rising domestic debt position, which she says could stifle economic growth.

She said governments’ borrowing culture, which is predominately focused on raising funds from government securities, is worrying as it could cripple the economy should the state default on honouring debts when they fall due.

“Ghana’s fiscal deficit (above 7% of GDP) and public debt (at about 42% of GDP) appear to be increasing, and so should be carefully watched. Ghana should especially watch its domestic debt profile. Governments always think that borrowing from the domestic market is okay. But it is actually difficult to manage domestic debt.

“This is because the money has been borrowed from our own institutions and banks locally, and if we fail to pay them, the economy will come to a halt,” she said.

Dr. Okonjo-Iweala, who is an immediate past-Managing Director of the World Bank, made these remarks when she delivered a lecture on “What Africa must do to own the 21st Century” at the John Agyekum Kufuor Foundation’s second Global Development Series on Democratic Governance in Accra on Friday.

The Bank of Ghana recently reported that the country’s domestic debt position has shot up by about 56.7% over the 2011 figure of GH¢11.8billion to GH¢18.5billion at the end of last year, due to excess spending on wages and energy subsidies, growth in debt-service expenditure, and a shortfall in revenues on account of lower-than-expected taxes from oil and mining companies

At the same time, the country’s external debt amounted to US$8billion in 2012, compared with US$7.8billion the previous year.

This brings the total public debt to GHC33.5billion, which is almost half of the country’s total GDP with 80% of the debt being financed domestically -- raising fears of crowding-out private-sector borrowers, particularly small- and medium-size enterprises, which the BoG said faced tight credit conditions in 2012.

Dr. Okonjo-Iweala said it is important for Government to find ways of enhancing domestic resource mobilization, but advised it to step-up efforts aimed at addressing the fiscal deficit and domestic debt.

The country’s Minister of Finance and Economic Planning, Seth Tekper, has however assured that Government’s focus for this year will centre on operating a leaner deficit, which will be spelt out when Government unveils its budget and economic-policy statement in the next couple of weeks.

He told the B&FT in an interview last week that the government’s annual GDP growth target of around eight percent accords with government’s election manifesto policies, which promised at least eight percent annual economic growth and a cap on the deficit at five percent of GDP within 2013-17.

“Eight percent growth is what we are targetting, which is what is in our manifesto. Regarding the deficit, to the extent that some of the elements that caused it to rise in 2012 will not be present this year, we’re going to scale it down,” he said.