IMF Country Rep: Elevated public debt has exacerbated pandemic impact

The Country Representative of the International Monetary Fund (IMF) Albert Touna Mama has said mounting public debt before the Covid-19 pandemic has exacerbated the impact of the virus on sub-Saharan African countries like Ghana.

Speaking on a webinar hosted by policy think tank IMANI on the topic, “Opportunities and Challenges of Public Financial Management Systems to Respond to COVID-19 in Africa”, Mr. Touna Mama said it is not surprising to see Ghana, among others, ask the Fund for emergency support to battle the effects of the pandemic.

“There is very little space for countries on the continent not to be affected. We were already warning countries in the last few years of increasing debt and very little fiscal space. This goes beyond Ghana,” he said. “It is therefore not surprising to see some of these countries requesting emergency financing,” he added.

At the onset of the virus in March, the Washington-based lender granted an application by Ghanaian authorities for an emergency facility to battle the economic impact of the pandemic.

The Fund, under its Rapid Credit Facility, granted a US$1bn loan to help address the urgent fiscal and balance of payments needs that Ghana is facing, improve confidence as well as support from other development partners.

Mounting debt, narrow fiscal space

According to the Bank of Ghana, the country’s public debt as at March 2020 stood at GH¢236bn, representing 59.3 percent of GDP—having increased steadily from 55.1 percent of GDP as at January 2020.

The IMF Country Representative argued that the coronavirus has presented a fine opportunity for Ghana to pursue a fiscal consolidation that would require rationalising some expenditure lines as well as seeking to ensure higher tax compliance to raise additional revenue.

Dr. Theo Acheampong, an economist who also spoke during the webinar, reiterated calls for the government to reassess some of its expenditure lines as a means of reducing the widening budget deficit.

“What COVID-19 has done with the loss of the revenue is that it has created a much bigger funding gap and we have to resort to few other sources to plug that gap. Even with the gap that existed [pre-COVID-19], we could still have pursued a few of these rationalisation initiatives to more or less reduce how big this gap would be.

“Some of these savings could actually then mean we probably would run under 6 percent to 6.5 percent of GDP deficit, which is probably 1.5 percent lower than the deficit estimates now that we are expecting a between 8 to 10 percent budget deficit,” he said.

Dr. Acheampong argued that initiatives like the Nation Builders Corps (NABCO), which provides stopgap employment to about 100,000 graduates, need to be reassessed in order to create more value as well as make more savings to create more fiscal room.