Head of financial advisory at Deloitte, Yaw Lartey has cautioned the country could risk prolonging its economic recovery process from the COVID-19 pandemic if checks are not put in place to halt over-spending on election related programs.
According to him though government can spend within the projected fiscal deficit target of 11.4 percent of GDP this year, a further spending will plunge the economy into difficult times.
“We have a novel situation in which case government has every right to suspend it. I think we are also within the global deficit threshold of 13.9 percent. Currently we are projecting 11.4 percent which is still below the global average of deficit of 13.9 percent. I think the only caution we have there is that government should still have some form of self-check and ensure that we still keep to at least the 11.4 percent, we should not go beyond the global average of 13.9 percent.
“Because this is an election year, we stand the risk of going beyond that and the danger with that is that it will lengthen the recovery process after COVID-19, because COVID-19 has put us in a hole and so if you overspend, you’re going to increase the period of recovery from the pandemic”.
Commenting on the progress of the country in proving its resilience to the shocks of the pandemic, Mr. Lartey indicated that government should be forthcoming with information on spending.
“I think in the absence of the pandemic we would have put the right question to government and say that look, this is an election year, you were supposed to keep to your promise of deficit of less than 5 percent and it was project right about 4.7 percent and that was still below the cap but now we are projecting 11.4 percent. Given the situation that we find ourselves, we have had to overspend particularly to fight the COVID and also to support companies that are suffering or that have had the adverse consequences of the pandemic on their businesses”.
Go for debt forgiveness
Meanwhile, Yaw Lartey had earlier proposed to government a resort to debt forgiveness even as measures are being initiated to revive the economy.
Speaking on a review of the Mid-Year supplementary budget, he indicated that despite measures put in place by the government, the Finance Minister should seek debt relief from the International donors.
“We should take advantage of the pandemic and apply for debt relief from International partners because it will benefit the government with some debt cancellation and help to invest in other projects. There is a lot of justification for that and I think the conversation has started. But the government should strongly push it and join other developing countries to make it a reality because there’s enough justification for it”.
Deloitte has also been proposing different ways of borrowing and re-profilling of the country’s debt in order to the debt control the rising debt-to GDP ratio of the country.
“There is the need to go back to the old mantra of smart borrowing and also borrowing to finance capital projects that will be able to pay for themselves. If we’re able to do that then the debt ratio will be minimized even though there are more borrowings”.
