As Ghana approaches its next election cycle, a blunt warning has been issued by former Finance Minister Seth Terkper regarding the heavy debt burden that awaits the next administration.
In a media briefing focused on Ghana’s International Monetary Fund (IMF) programme and debt restructuring, Mr Terkper outlined his concerns over the depletion of the nation’s financial reserves and buffers, which are essential for economic stability.
“The next administration will be saddled with a significant debt burden,” Terkper stated, emphasizing the critical situation of Ghana’s reserves and financial buffers. These reserves provide crucial leverage for managing the economy, yet they have been nearly exhausted. This depletion has been exacerbated by reliance on the Primary Balance, a measure that Terkper argues leads to complacency.
Mr Terkper pointed out several critical issues with the current fiscal framework, which he believes fails to adequately address the country’s economic challenges. He criticized the framework’s focus on non-interest expenditure, which excludes vital components such as interest payments, arrears, and amortization.
“Using the Primary Balance as a measure of fiscal health excludes critical elements like interest payments, arrears, and debt repayments,” Terkper explained. He highlighted that arrears, including those in the energy and banking sectors, were estimated to be GHC 53 billion in 2021. A portion of this has been added to the public debt, yet it is not reflected in the fiscal framework’s ‘financing’ section.
Premature Jubilation Over Economic Progress
Mr Terkper also warned against premature celebration over perceived economic progress, noting that such progress is primarily based on the sacrifices of domestic and external lenders who have suffered and will continue to suffer haircuts.
“There is no need to be jubilant. The view that we have made progress is premised on the sacrifices and largesse of domestic and external lenders. Our legacy may not make us third-time lucky. After HIPC (forgiveness), we should not have defaulted again. We should have continued on the PRMA path, managing crises with significant inflows from our oilfields and the recent IMF tranches and donor support.”
Seth Terkper
Mr Terkper’s warnings come as a stark reminder of the economic challenges that lie ahead for the next administration. As the election approaches, there is a critical need for prudent fiscal management and robust economic policies to navigate the debt burden and stabilize the economy.
The IMF has reported that Ghana’s primary fiscal balance improved by over 4 percent of GDP last year. However, Mr Terkper argues that this measure is insufficient for assessing the overall fiscal health of the country, given the exclusion of crucial elements like interest payments and debt repayments.
Moving Forward: The Path to Stability
To achieve economic stability, Mr Terkper suggests that Ghana should focus on maintaining significant inflows from its oilfields and continue to leverage support from international financial institutions like the IMF. Additionally, there is a need to adhere to the principles of the Petroleum Revenue Management Act (PRMA), which has previously helped in managing the nation’s crises.
The next administration will have to deal with the immediate challenges of high public debt, depleted reserves, and the need to restore confidence among domestic and international lenders. Effective management of these issues will require a comprehensive approach that includes restructuring debt, improving revenue collection, and controlling non-essential expenditures.
As Ghana prepares for its next election, the warnings from Mr Seth Terkper highlight the urgent need for careful economic planning and management. The heavy debt burden, depleted reserves, and the potential for continued economic instability present significant challenges for the next administration. Addressing these issues will require a combination of prudent fiscal policies, effective debt management strategies, and robust economic reforms to ensure sustainable growth and stability for Ghana’s economy.
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