Ghana is just 1 year away from Sovereign Insolvency - Ricketts-Hagan

Former Deputy Minister of Finance and a Member of Parliament for Cape Coast South, Kweku Ricketts-Hagan has cautioned the Government that with an appropriation of about GH¢129 billion approved by Parliament and assented by the President Nana Addo Dankwa Akufo-Addo, Ghana stands the risk of sovereign insolvency and the risk of default on loans in just one year, if care is not taken.

The lawmaker and the economist said the government should stop its insatiable appetite for borrowing and focus on driving up revenues, which is still too low to hit the projected target of GH¢72 billion, which is just 16.7% of GDP. He urged the Government to be disciplined in its macroeconomics and fiscal policies, to expand the economy by improving GDP through productivity and job creation, rather than cosmetic growth.

He said with Ghana’s current GDP of GH¢383 billion in nominal terms, a public debt of GH¢291.6 billion, and an appropriation of GH¢129 billion, revenue has to be on target to avoid a midyear revision that can necessitate looking for additional money through borrowing to fill the deficit gap.

Hon. Ricketts-Hagan made these comments to the media after Parliament had passed the Appropriation Bill into Act on March 30, 2021.

He said “Any additional borrowing other than what has been budgeted for consumption can be catastrophic for this fragile economy. Therefore the government and the entire MDAs should be warned against overspending, leakages and wastage.”

He further said when you look at our current GDP and revenue projected from an asset perspective and you look at our Debt burden and the Appropriation passed from a liability standpoint, you will realise that as a country our liquid assets over our liability is only about GH¢35 billion (approximately $5.9 billion) and that he says is not a lot, and should not give comfort to anyone, because what that means is that as a country we are only 35 billion cedis away from bankruptcy.

He said “Yes! Countries can be bankrupt too. So, it has gotten to a point now, that we have to put politics aside and be concerned about our country’s debt as citizens. Ghana is simply in trouble and will get into more trouble if care is not taken. Our public debt, our deficit, and the overspending by the government on some unnecessary promises, when we are even struggling to meet revenue targets, should alarm all of us.”

“Debt–to-GDP is over 76%, that is alarming but what is even more frightening is our Debt service-to- Tax revenue, which is around 92%. This is the true measure of how close you are as a country to defaults on your loans. It means Interest payment and Amortisation, which is projected to be GH¢51 billion will take 92% of our entire projected Tax revenue of GH¢ 56 billion. That will leave government little or no fiscal space to do anything else with our taxes. So the new exorbitant and insensitive taxes in the middle of a pandemic that were are being asked to pay are just going to pay for the reckless borrowing of this government.”

He said we have reached what is known as a “Peak debt”, the threshold for debt-service, beyond which it gets difficult for any country to use new debt to invest in the economy for income growth that will exceed debt-service growth.

“So now that Ghana is at peak debt, it means that we are technically on a terminal insolvency trajectory, if government does not listen and continues this bad strategy of borrowing to refinance old debt, and now doing zero-coupon Eurobonds with lumpy back ends, just to kick the 'can of loans' down the road for short fiscal gains in terms of space, government should be warned that eventually we could default on our debts as a country.”

GH¢129 billion Appropriation Bill approved by Parliament Parliament on March 30, 2021, passed the Appropriation which involves a total allocation of GH¢129 billion.

The passage means that government will be able to spend the sum to finance its operations for the 2021 financial year spanning from January 1 to December 31, 2021.

The approval by the House authorizes the Finance Minister Ken Ofori-Atta to draw funds from the Consolidated Fund to finance government operations.