Government's GHC6.4 supplementary budget will be funded by debt – IFS

Economist with the Institute of Fiscal Studies (IFS), Leslie Dwight Mensah has projected that the sum of GHC6.4 billion approved by parliament as supplementary budget will be funded by debt.

Finance Minister, Ken Ofori-Atta on July 29 sought for parliament’s approval on the supplementary budget for the 2019 financial year which among other things will be going into the payment of debts, specifically energy sector debts, and interest payments.

During a review briefing Tuesday, Mr. Mensah noted that government’s consistent borrowing on the basis of this approved mid-year supplementary expenditure budget will increase the outstanding GHC203.9 billion debt stock.

He said, “The total supplementary request of GH?6.4 billion is, therefore, going to be funded by debt. This additional borrowing will further increase the debt stock, which hit GH?203.9 billion in June 2019, and the debt-to-GDP ratio, which reached 59.2% in the period”.

“This is seen in the projected increases in the budget deficit by GH?1.2 billion and debt amortization spending by GH?5.2 billion, to pay off crystallized energy sector contingent liabilities in the face of an unchanged total revenue projection”, Mr Mensah added.

In 2018, the fall in debt ratio slopped to 60% of Gross Domestic Product (GDP) due to the rebasing of the national income accounts, raising a security alarm about the debt position of Ghana.

Mr. Mensah further said the burden of debt service expenditure on government’s finances is very high, thereby calling for urgent steps to limit further borrowing by the government.

He also expressed worry about the fiscal policy path the country is plying, noting that it is currently “unsustainable, as the country’s indebtedness looks likely to worsen on the basis of current spending and borrowing decisions”.

IFS on this note urged government to reverse the course with a strategy to reduce borrowing in order to improve debt dynamics, particularly with regards to the ballooning debt service cost.

The review of the Mid-year budget was held Tuesday, August 6 at the Institute of Fiscal Studies in Accra.