Despite some fiscal efforts embarked upon by government to consolidate its expenditure and reduce the public debt, some financial watchers have warned that government’s appetite to borrow is still high.
Delivering the Supplementary Budget in parliament last week, Finance Minster Seth Terkper disclosed that, for the first time since the declaration of HIPC in 2001, government has slowed down the rate of growth of debt accumulation between 2014 and 2015.
Mr. Terkper announced that the debt-to-GDP ratio has fallen from 72 percent of GDP at end of 2015 to 63 percent at end of May 2016.
But Speaking to Citi Business News, a senior lecturer at the University of Ghana Business School, Dr. Lord Mensah stated that current developments after the announcement of the Monetary Policy Rate(MPC) clearly indicate that government still has a strong appetite to borrow.
“If you look carefully after the MPC announcement, you realize that there were indications that inflation has been showing a downward trend and then exchange rate has also shown some stability,” he said.
According to Dr. Mensah the BoG should have reduce the policy rate considering the trend and stability in the two macroeconomic indicators.
“The expectation was that the Monetary Policy Rate which is the basis of all structures of interest rate will be reduced. But it wasn’t. Which presumes that the government still has appetite for borrowing,” he said.
He explained that with the move to maintain the policy rate at 26 percent the government was still sending a message that it will pay high interest to lenders who give their funds to it.
“If the interest rate is kept at 26 percent government is telling the banks and investors that it is good to lend to the government. If it is reduced people will not have the appetite to give money to the government and the banks will look for alternatives to invest the deposits they take from people”, he argued.
Dr. Mensah stated that the move will encourage people to still invest in government’s Treasury Bill.
He was of the view that the debt level has shown some improvement due to the interest that has being paid on most of the loans acquired in the past.
By: Lawrence Segbefia/citibusinessnews.com/Ghana