Drop in debt-to-GDP ratio not guarantee to borrow more – Economist to government

Economist, Professor Godfred Bokpin, has cautioned government to be measured in its appetite for borrowing as result of a drop in Ghana’s debt in relation to the size of the economy or Gross Domestic Product (GDP).

“Provisional estimates by the Ghana Statistical Service showed that the country recorded a growth rate of 5.4 per cent in 2021, cutting the debt-to-Gross Domestic Product (GDP) ratio to 74.4 per cent , from the earlier 80.1 per cent.”

But speaking to Joy Business on concerns that the decline may push government to borrow more, Prof. Bokpin who is with the University of Ghana warned there is no fiscal space to increase the debt stock.

“We have to be very cautious. The fact that debt-to-GDP ratio has dropped on the strength of higher growth doesn’t necessarily mean that we have the fiscal space to go on borrowing,” he stressed, adding that, “debt-to-GDP ratio in itself is not a comprehensive measure of Ghana’s debt sustainability position”.

Prof. Bokpin explained that a mere look at the baseline interpretation of debt-to-GDP ratio simply shows how the country can pay its debt in a year.

“We need to go beyond debt-to-GDP ratio and look at other indicators of debt sustainability, particularly, liquidity measures”.

Giving some recommendations, he advised that it is important for government to improve its liquidity position through revenue collection.

“This current drop in the debt-to GDP ratio as a result of the expansion is a false hope”, he said.

He maintained that it is time to focus on how the expansion in the economy can be converted into improved tax collection through policies that will impact the productive sectors of the economy.

Touching on the size of Ghana’s external debt stock, Prof. Bokpin advocated a move that will enhance export to help cater for debt.

He suggested that government must add value to export commodities to increase the country’s foreign earnings. –

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