Government in a bid to drastically reduce Ghana’s growing debt levels has settled on a number of measures it believes will deal with the matter.
[contextly_sidebar id=”sf68yH3nQwijMWwBpSbo2fa6a0JAWSMw”]According to figures from the Bank of Ghana, the country’s current total public sector debt stock stood at 88.2 billion cedis at the end of March 2015, representing 65.3 percent of GDP.
There is already a huge debate about how government’s continuous appetite for borrowing is not sustainable and its contribution to Ghana’s current economic woes.
Its high debt levels coupled with shortfalls in revenue have also contributed to the cedi’s woes.
Ghana’s debt hit 76.1 billion cedis by the close of last year up from the 51.9 billion cedis it recorded in 2013.
This means government borrowed 24.2 billion cedis last year alone.
Industry players fear government will borrow more than this figure this year.
Critics have warned Ghana’s continues appetite for borrowing will push it to soon become a Highly Indebted Poor Country (HIPC).
Measures to deal with debt
But perhaps a worrying trend is how government over the years have failed to significantly clear debts they have accumulated.
But finance minister Seth Tekper in a presentation today May, 20th May, 2015 on the ‘state of the economy and outlook’ however believes the measures it will begin vigorously rolling out, will deal with the matter.
The measures include using excess cash from the country’s stabilization fund to pay for debts, the issuing of more eurobonds,the financing of major capital infrastructure projects from other sources and not the budget.
Other measures include the use of some of the proceeds from the Ghana Infrastructure fund to settle some of the debts as well as the paying of commercial loans contracted by state owned enterprises by themselves and not by government.
Proceeds from stabilization fund
According to Seth Tekper excess cash from the country’s stabilization fund will be used to set up a ‘sinking fund’ which would be used to fund part of the country’s debt.
‘Now we have found a mechanism in the petroleum funds which says when you cap the stabilization fund, excess can be used for two purposes only; the first is to used to establish the contingency fund which we started to establish under the constitution.
The second is that you can use part of that excess to pay down only debts and in fact another feature is that when Bank of Ghana finances, they don’t pass dividend directly to government; the dividend is used to pay down borrowing from the bank.
So we shall use that excess amount to establish the ‘Sinking Fund’ to start paying down our ten year bonds on an annual basis’.
State Owned Enterprises
Seth Tekper adds that ‘a chunk of our external debt have gone to commercial projects and this is why cabinet and parliament passed a resolution and an authorization from cabinet that commercial projects should start paying for the loans in order that we don’t put it on hold.
So state owned enterprises will pay for commercial loans they take.
If we were to do this, in percent of GDP, we had nearly 10 percent of our current debt in only high profile commercial projects’.
Major capital projects
Another way government wants to clear its debt is to stop the financing of major capital projects from the budget.
This will see some major infrastructure projects taken off the budget.
Seth Tekper explains ‘we will stop putting major capital projects on our budget; gang of six is an example.
Even the United states and Germany do not do that, they borrow long term that is why they have 25 and 30 year bonds to do major projects and are paid over time.
The difference is we borrow and we put everything on the taxpayer, the projects do not pay.’
Earlier the Governor of the Bank of Ghana Dr. Henry Kofi Wampah said Ghana’s debt levels will gradually reduce because of the targeted decline in future deficit and efforts to ensure sustained growth .
“Though the absolute number (debt) may not come down immediately, but then as the consolidation takes place the numbers (debt) will come down, especially the deficit GDP ratio. This year we expect a deficit of 7.5%, next year that deficit will go down to just around 6% then the following year to about 4 %. So that gradual decline in the deficit will help consolidation of the fiscal and therefore also will help reduce the debt. Meanwhile growth is also going up at least in 2016 and 2017, growth is expected to be around 6% and 9%”, he added.
Government is expected to originally borrow 25.4 billion cedis in the first half of the year from the domestic market.
This is twice the amount it did from the domestic market last year through bonds and treasury bills.
Government has also announced plans to issue a 1 billion dollar Eurobond before close of June this year.
By: Vivian Kai Lokko/citifmonline.com/Ghana