Ghana must shed off its debt conundrum …66 years after independence

 When the government opted for the Highly Indebt­ed Poor Country (HIPC) initiative in 2001 for debt forgiveness, the hopes of many of Ghanaians were that the country had been given a clean sheet to operate and would not go back on the path of debt distress.

That was because most of Ghana’s external debts, which were suffocating and strangling the nation were forgiven.

In return, the country was asked to invest the debts it should have paid to its external creditors on social projects such as schools and toilet facilities to promote educa­tion and enhance sanitation, to help reduce poverty in the country.

That birthed what was described as HIPC projects, which were con­structed around the country with some of them still standing in their original state today.

Under the HIPC programme, about $3 billion of the country’s external debts, mostly in the form of concessional loans, were forgiven by its creditors. Thus, the country was relieved of its heavy debt burden thwarting its growth.

In less than a decade when the Ghana’s external debt was cancelled, the country began to accumulate more debts, raising questions about whether the country on its own can be fiscally disciplined.

By 2009, the country’s total public debt had ballooned to about GHc9 billion, when the then New Patriotic Party was exiting gover­nance after losing to the National Democratic Congress in the 2008 general election.

With low domestic revenue mo­bilisation, the government began to borrow to meet its financial obligations and economic challeng­es of the country.

By 2016, when the NDC admin­istration, which took the reins of power in 2009, was leaving office, the country’s total public debt had jumped more than 15 times to GHc137 billion.

As a result, the government earlier in 2015 had opted for an IMF programme for an extended credit facility of $976 million over a period of three years to support the economy and reduce growing public debt and depreciation of the Cedi, the country’s currency.

Interestingly, around that time, the country had earlier started commercial oil production in 2010, which was raking in some revenue for the state.

It is rather intriguing that when the country started oil production and earning revenue from this additional stream of income, its public debt began to soar.

So far, the country has raised more than $8 billion from the exploitation of its hydrocarbon resources. It appears the huge revenue inflows from oil extraction has done did little to improve the public purse and control growing public debt.

The government has rather used the fiscal space created by oil inflows to borrow more to finance the budget and development proj­ects in the country.

But unfortunately, the loans contracted by the government were mostly used and continue to be used to finance recurrent expen­diture such as paying of salaries, instead of investing such financial resources in capital projects which could repay such loans.

In 2011, the influence of oil catapulted the country to record the highest growth of about 14 per cent. If the government had expended the revenues from its oil and other mineral resources as well as loans contracted on capital proj­ects which can pay for themselves as it did for the Terminal Three Project at the Airport, the country would not find itself in the current debt quagmire.

Notwithstanding the financial inflows from oil to support the budget and the economy, the government continued to borrow, forcing the country to pursue an IMF programme in 2015.

After completing an IMF pro­gramme in 2018, in less than five years, the country is back to the IMF due to growing public debt.

The country presently has been plunged to into economic crisis due to growing public debt. A debt sustainability analysis conducted by the government indicates that the country’s public debt is unsustain­able, which requires intervention from the Bretton Wood institutions like the IMF to save the economy from being thrown out of gear.

Currently, the government of Ghana and the IMF have success­fully reached a Staff Level Agree­ment on economic reforms to be supported by a new three-year ar­rangement for an Extended Credit Facility of about $3 billion.

Consequently, the country is restructuring its debts to be on the path of debt sustainability. In the Domestic Debts Exchange Programme, it seeks to restruc­ture about GHC137 billion of its domestic debt.

Ghana’s total public debt cur­rently stands at more than GHc575 billion, which has crossed more than 90 per cent of the country’s Gross Domestic Product and gone beyond the internationally-accept­ed threshold of 70 per cent.

The country has been to the IMF for 17 times for balance of payment support and experts be­lieve it would continue to go to the IMF for support due to fiscal indis­cipline on the part of the managers of the economy and huge budget deficit incurred by the country.

One of the finance experts who believe the country would continue to depend on the IMF for support is Professor Godfried Bokpin of the University of Ghana Business School.

Prof Bokpin argues that IMF is not the solution to the coun­try’s economic woes as it requires home-grown solutions and fiscal discipline to put it on the path of growth and debt sustainabili­ty path. He opines that the IMF programme is a ‘bitter pill’ and provides short-term solution to the country’s economic challenges.

IMF programme comes with harsh conditionalities, including freeze on employment, cut in ex­penditure and increase in taxes. It is a measure to provide short-term solutions to the country’s econom­ic challenges.

But of course, it must be acknowledged that the IMF does not force any conditionalities on its debtors, as the debtors themselves must come with reforms to help them address the challenges which plunged them into such difficulties.

A number of factors have been assigned for the country’s low revenue mobilisation, resulting in growing public debt. Ghana’s tax revenue to Gross Domestic Product stands around 14 per cent, which falls below the sub-Saharan average of about 16 per cent.

The factors include high interest payment on the country’s debt, low revenue mobilisation, tax evasion, high number of informal-sector workers not captured in the tax net, wasteful expenditure and corruption.

Particularly, on interest payment, it is estimated that more than 60 per cent of the country’s tax reve­nue is spent on interest payments, leaving little to pay salaries and fi­nance other development projects.

On tax evasion, the country los­es millions through transfer pricing and illicit financial flows. It is estimated that regarding the illicit financial flows alone, the country loses about $ 4-5 billion annually, due in part, to its porous borders.

Worryingly, the amount lost to illicit financial flows in a year is the same amount Ghana is seeking from IMF to support the economy.

As the country marks its 66th Independence Anniversary on the theme “Our Unity, Our Strength, Our Purpose,” with celebrations across the country, we at the Ghanaian Times encourage the government to put measures in place to improve domestic reve­nue mobilisation and reduce the recurring budget deficits (spending more than budgeted for) to put the country on the path of debt sustainability.

To this end, government must continue to its efforts to formalise the economy, where the data and information of all individuals and businesses could be captured for tax purposes.

As it stands now, the tax burden is only a few of public sector workers and registered businesses captured by the Ghana Revenue Authority. Yet there are a lot of informal sector workers who make so much in a day but do not pay tax.

One other untapped area gov­ernment could harness to improve its domestic tax revenue is non-tax revenue. They include royalties, fees for mining rights, trade licenc­es for commercial establishments, construction permits and issuance of birth, marriage and death cer­tificates.

The Institute of Fiscal Stud­ies, an economic think tank, has suggested that the extractive sector could be an avenue the govern­ment could tap to raise more domestic revenue. To this end, IFS, among others, suggested that the government must renegotiate oil and mining contracts to have bigger stakes in such companies, initiate a process to have pur­chasing controlling interest in the Ghana operations of large-scale mining companies, increase the paid and participation interest in all the Ghanaian operations of the oil companies in order to increase Ghana’s interest to 55 per cent and use production sharing agreement for new oil and mining contracts when funds are available.

Ghana is too rich be poor and beg for debt forgiveness. God has been generous with the country. It has blessed it with so much natural resources, which, if well exploited and utilised, should make the country ‘heaven on earth.’

Regrettably, some of the coun­tries Ghana is currently asking for debt forgiveness from do not have even half of Ghana’s natural re­sources, yet have worked to reduce poverty and transformed their economies into thriving ones with good infrastructure , jobs and sur­pluses to support other countries.

The time is ripe for the govern­ment to restructure the economy to raise monies locally now that the international capital market to closed to the country due to growing public debt, and invest the loans and financial resources the country raises from its natural resources in capital expenditure which can pay the debts by them­selves, instead of spending such financial resources on recurrent expenditure.

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