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Business News Tue, 1 Oct 2019

Revenue creeps as public debt soars

The Summary of Economic and Financial data report (September) has revealed that the country continuous struggle to increase domestic revenue mobilization, thereby, prompting excessive borrowing from external sources, is leading to a rise in public debt.

The data, published by the Bank of Ghana, show that while domestic revenue as of July 2019 was just a paltry 7.7 percent of GDP, the public debt has reached a whopping GH¢205 billion, representing 59.4 percent of GDP, with external debt alone taking more than half of it.

The country’s external debt is now 31 percent of GDP compared to same period last year when it was 28.7 percent of GDP. What this essentially means is that government is resorting to borrowing more from outside the local economy to fill in the revenue gap in order to have money to undertake its commitments.

Commenting on the implication of this on the economy, Director at the Institute of Statistics, Social and Economic Research (ISSER) of the University of Ghana, Professor Peter Quartey, said it calls for worry as the relationship between the ballooning public debt and low revenue has the possibility of starving government of funds to undertake capital projects in future.

“Our debt-GDP is a cause for worry and I would have thought we would rather worked it downwards and grow revenue. Our expectation is that we would mobilise more domestic revenue and, by so doing, be less dependent on debt.

But if we continue to borrow, it won’t be so good because as you borrow more, your interest payments increase and that means you need to allocate more resources to finance debt at the expense of other developmental expenditures,” he said in an interview with the B&FT.

Besides the interest payment, the professor added that the cedi will not be spared the consequences if attention is not given to boosting revenue and reducing the public debt, especially, the external debt.

“It also has implications on the interest rate because if you have foreign denominated debt and you have to service them, it means you need more foreign exchange to service this debt and that will have some repercussion on the economy,” he said.

A further disaggregation of the figures is even worrying as it shows that tax revenue mobilization remains extremely low, even getting worse. The tax revenue as of July 2019 was just 6.1 percent of GDP compared with the 6.5 percent recorded same period last year.

The low tax revenue continuous to spark debate about what innovative means government is developing to rope the informal sector into the tax net as reports indicate 80-90 percent of businesses in the country are from the sector.

Source: thebftonline.com