Ken Ofori-Atta, Ghana’s finance minister’s strategy of external borrowing while using the GDP as a yardstick of debt sustainability is problematic.
This month USD3bn has been added to our sovereign debt; and in March he plans to borrow another USD750million.
Often we hear henchmen say: “Keep quiet and let’s listen to expert opinion; Do you know more than Ken?”; his educational credentials are used as a basis to deflect critics.
Last week when Frank Laporte, the World Bank Country Director visited the Speaker of Parliament, he reportedly told the Speaker that Ghana’s debt status is at a “moderate to high risk of debt distress,” and urged the finance minister to be cautious with his rate of borrowing.
Laporte added that he was confident the finance minister and his team were fully aware of that since he was in constant communication with them.
Let us look at Ken Ofori-Atta’s attitude to external borrowing: replace relatively shorter term domestic debt with more long term debts so long as you get cheaper than previous rates.
Our Fiscal Responsibility Act of December 2018, sponsored by our finance minister “caps the annual fiscal deficit at 5 per cent of GDP”.
In Ghana, the GDP is an “estimate” determined at least three months after the event, meaning, the Ministry of Finance spends before the GDP is known. Meehn!
Should the law not be amended to rather focus on the budget deficit being a percentage of the previous year’s tax revenue, whatever reasonable percentage the MPs agree to?
In November, Kenya drafted new laws to “avoid borrowing from capital markets abroad using instruments such as dollar bonds, after a binge of borrowing in recent years including Eurobond offerings, a package of Chinese loans and syndicated commercial loans,” reported Reuters on 15 November 2019. “The infringement only came to light recently when a new team took over at the Treasury.”
When Yaw Osafo-Maafo was Ghana’s finance minister he complained that the IMF fined us for “misreporting” or a cover-up by the previous administration.
Kenya’s public debt climbed to 62 per cent of GDP (USD59bn), breaching a legal ceiling of 50 per cent set for the 2015-16 financial year with no penalties suffered by anyone.
According to Bank of Ghana (Monetary Policy Press Release; 2020, January 31), “the provisional estimates indicate that the stock of public debt rose to 62.1 per cent of GDP (GH¢214.9 billion), [USD39.1bn] at the end of November 2019 compared with 57.9 per cent of GDP (GH¢172.9 billion) at the end of November 2018.
Of the total debt stock, domestic debt was GH¢102.9 billion, [USD18.7bn] while external debt was GH¢111.9 billion [USD20.4bn] with a share of 52.1 per cent in the total public debt”.
By comparison, at HIPC Completion Point, Ghana’s “external debt stock” was guaranteed to reduce to USD2.4 billion (Bank of Ghana Policy Briefing Paper; 2005, January 20).
So TODAY, we have an eight-fold increase in external debt compared to 2005.
GDP as a yardstick of economic health, is fraught with multiple problems.
Let us, therefore, look at three best practice benchmarks.
First; before the US dollar went off the gold standard, gold was the real deal.
We can, therefore, look at the quantum of our debt in terms of 1971 dollars and or cedis that our children will have to pay forty years from now when most of the bonds are due.
Second; LIBOR – London Interbank Offered Rate – the gold standard in lending.
On 31 January, when Ghana was preparing for its latest USD3bn sovereign bond at rates from six per cent to nine per cent per annum, LIBOR was 1.81 per cent per annum, more than 3 times lower!
Third; Switzerland, Denmark, Sweden and Japan have been giving savers negative interest rates for several years, meaning our government is paying too much for idle monies which would not have earned interest anyway.
But our rented press/henchmen will tell you the bonds were “oversubscribed”!
And why not – who does not want free money?
Many Ghanaians rejected former finance minister Seth Terkper’s “Smart borrowing” mantra only to replace it with Ken Ofori-Atta’s Bible quotations.
On Joy FM last Saturday, Ofori-Atta stated that the borrowing is important in Ghana’s quest to become an export-driven economy.
We cannot even get the fundamentals – including sanitation – right, so what are we going to export and to where based on best practices?
We cannot simply assume that our leaders know what they are doing, when there is plenty of empirical evidence that they are often misleading, misinformed or ignorant and dishonest!
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