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Understanding Ghana's public debt situation and its burden on future generations

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Thu, 13 Aug 2020 Source: Samuel Sagoe

Young people are being burdened with increasing debt portfolio of our country as such must be involved in discussions geared towards the effective management of the country's public debts.

Speaking at the fourth edition of the GRASAG Webinar, the Dean of the School of Business, University of Cape Coast, Professor John Gatsi, identified the need to understand and ensure proper Public Debt Management by the present generation in order to sustain the future generation.

He defined the future generation from the perspective of Petroleum Revenue Management where he described it as people who will be alive by the time that petroleum resources will be depleted and will no longer be producing petroleum. Basically, they are people who will be alive during the payment of any debt incurred by this current generation.

According to him, debt management is governed by law, policies and principles as enshrined in the Public Debt Act 182 (1) of the 1992 constitution of Ghana. The Act provides for the management of Ghana's debt through what is referred to as sinking funds which is a fund established by an economic entity by setting aside revenue over a period of time to fund future capital expenses or to repay a long-term debt.

Sources of Debt

Prof Gatsi identified two main sources; externally procured and the internally procured debt. He noted that when foreign export is not performing well, the revenue generation is disturbed. However, depreciation on the import led economy helps in the mobilization of funds by the government. He therefore advised the undertaking of activities geared towards revenue generation through investing in the economy while reducing high expenditures.

Debt Sustainability Indicators

These are indicators which show the country's debt to GDP ratio. Ghana's debt to GDP ratio stands at 67.2%, crossing the threshold of 60% which is the international standard of debt sustainability.

Another debt sustainability indicator, which is the Primary Balance, as was seen in the mid year review by the Finance Minister shows that Ghana had a primary balance of (-4.6). These indicators show that the country is not generating enough revenue.

In conclusion, Prof. Gatso noted the importance of the private sector in alleviating the burden of the public sector hence charged stakeholders to ensure the proper management of such in order to generate more revenue. Further, he also identified the need for regular evaluation of debt management procedures to maintain a consistent track of progress.

To further help proper debt management, he said, effective Research Funds should be established to support research in Ghana. As such, mechanisms must be put in place to ensure there is value for money being channelled into various projects.

Columnist: Samuel Sagoe