Gov’t blames debt woes on cedi

The Deputy Minister of Finance, Casiel Ato Forson, has launched a strong defence of the government’s debt-management strategy following criticism of the continuous rise in public debt.

Mr. Forson claims depreciation of the cedi is what has put the debt level up, and not necessarily government’s appetite for borrowing.

Speaking at the post-2016 budget analysis programme jointly organised by the Ministry of Finance and Institute of Financial and Economic Journalists (IFEJ), Mr. Forson said the debt remains under control and keeps reducing when measured in dollar terms.

“If you look at the debt numbers carefully, the debt is not going up. The foreign part of the debt in terms of forex is actually reducing, it is not going up. Why people think it is going up is when the figures are translated into cedis. Because of depreciation of the currency it looks as if the debt is going up, but in real terms it is reducing,” he said.

The provisional public debt stock as at September 2015 is GH¢92.2billion, which is equivalent to 69.1 percent of GDP. As at the end of 2014, the public debt stock stood at GH?76.6billion. The total public debt, according to the central bank currently constitutes 59 percent external and 41 percent domestic. The cedi as at the second week of November this year depreciated by 15.6 percent against the US dollar.

According to government officials, even though interest payments on loans have increased from GH?9.6billion this year to GH?10.49billion in 2016, the debt management strategy put in place by the Finance Ministry has caused the public debt level to increase at a slower pace.

A number of economists contend that the huge surge in the country’s public debt stock in just one decade is attributed to the large fiscal deficits registered over the years, which were financed by funds borrowed from both domestic and foreign sources.

However, Dr. Eric Osei-Assibey, an Economist at the University of Ghana, opines that the composition of the public debt and cost of servicing it are major concerns government must take steps to address.

“What is of concern is the debt structure we have, and then the servicing cost. First, if you look at the debt structure you can see that we have gradually shifted away from domestic debt and the component of the external debt is increasing. Once you have that you are exposing yourself to international shock, because repayment of the loans is going to be done in foreign currency and that will put pressure on the domestic currency.

“The servicing aspect is one of the areas of concern, too. The cost of servicing debts keeps going up. For example, the servicing cost of the Eurobond (10.75 percent) is one of the highest in the world. So for me the deteriorating terms of the debt structure is an area of concern that government must address,” he said.

His view is supported by Prof. Newman Kusi, Head of the Institute of Fiscal Studies (IFS) who said if well-grounded fiscal framework measures are not implemented swiftly by managers of the economy, the country will soon find itself in the situation Greece is currently going through.

“Given the high level of public debt, there is an urgent need for a well-grounded fiscal framework to anchor fiscal policy and guide it toward the achievement of medium-term objectives. Credible policies to restore debt sustainability, macroeconomic stability, and a return to high growth and job-creation are needed. Otherwise, the country will very soon be in a debt meltdown like Greece.

“As the IMF has indicated, given the high level of public debt and financing constraints, fiscal adjustment will need to be strengthened in 2016. The real challenge, though, is whether government will be able to demonstrate fiscal prudence in the run-up to the 2016 elections,” Prof. Newman Kusi said.

However, Mr. Ato Forson, in his response, said government has put in measures to address the situation by controlling the main driver of debt accumulation -- primary deficit, adding that government from 2016 will no longer borrow to service debt but rather allow capital projects to pay for themselves.