In a recent virtual media dialogue on the State of the Ghanaian Economy and the IMF Programme, former Finance Minister Seth Terkper delivered a compelling message: Ghana must prioritize the establishment of a structured debt repayment system to achieve fiscal stability.
Mr Terkper’s assertion resonates deeply amidst Ghana’s ongoing struggle with debt accumulation. He emphasizes that relying solely on economic growth to alleviate debt burdens is insufficient without a robust mechanism in place.
Drawing from his own experience as Finance Minister, Mr Terkper underscores the efficacy of a sinking fund in curbing debt accumulation.
During his tenure, a sinking fund played a pivotal role in repaying a significant $750 million debt incurred by the previous Kufuor administration. This success story serves as a tangible example of how proactive debt management measures can yield positive results.
“Setting up a debt repayment system is as urgent as it was in 2013 and 2014. For us, the introduction of the sinking fund helped us reduce the rate of debt accumulation. Through the sinking fund, we were able to pay part of the first $750m Sovereign Bond.
“So things were fairly much under control, and it is helpful frankly, and I keep emphasizing that you cannot grow your way out of debt. If it were possible, we would have achieved it. If you do not set money aside for debt repayment when you are growing, it’s a mirage, you can never reduce your debt accumulation. So for me, the sinking fund is something the nation should adopt.”
Seth Terkper
Mr Terkper’s call for a structured debt repayment system is not just a matter of financial prudence, it’s a strategic imperative for Ghana’s long-term economic health. Inasmuch as sustainable debt management requires foresight and proactive measures, it is beyond mere economic expansion.
Mr Terkper’s remarks resonate with the sobering reality that without a structured approach to debt repayment, Ghana’s economic growth efforts may be futile in addressing its debt challenges.
His advocacy for the adoption of mechanisms like the sinking fund reflects a complex understanding of fiscal policy imperatives crucial for Ghana’s economic resilience.
Ghana’s Soaring Public Debt, A Closer Look at the Numbers
Meanwhile, as of the end of 2023, Ghana found itself grappling with a daunting figure: GH¢610 billion ($52.4 billion) in public debt.
This staggering sum marked an increase of GH¢42.7 billion from September to December 2023, following a brief respite where the debt fell by GH¢14.2 billion between June and September 2023, settling at GH¢567.3 billion ($51.0 billion).
Alarming as these numbers are, perhaps even more concerning is the fact that the total public debt now accounts for a substantial over 80% of the country’s Gross Domestic Product (GDP).
Delving deeper into the composition of this debt, data from the Central Bank reveals a concerning breakdown. The external component of Ghana’s public debt stood at $30.1 billion (¢350.3 billion) in December 2023, representing a significant 41.6% of GDP. Meanwhile, the domestic debt amounted to ¢259.7 billion, comprising approximately 30.1% of GDP.
While these figures paint a grim picture of Ghana’s fiscal health, there is a glimmer of hope on the horizon. According to projections from the International Monetary Fund (IMF), Ghana’s Debt-to-Gross Domestic Product (GDP) ratio is expected to see a gradual decline over the next six years. In its April 2024 Fiscal Monitor, the IMF forecasts a drop in the debt-to-GDP ratio to 69.7% by 2029.
However, the road to recovery won’t be without its challenges. In 2024, the debt-to-GDP ratio is estimated to hover at 83.6%, signaling a steep climb ahead. Subsequent years see a gradual decline, with ratios of 80.9%, 77.9%, 74.9%, and 72.0% projected for 2025, 2026, 2027, and 2028, respectively.
These projections highlights the urgent need for Ghana to implement effective debt management strategies. While the IMF’s forecasts offer a glimmer of optimism, they also serve as a stark reminder of the critical juncture at which Ghana finds itself.
Swift and decisive action will be essential to navigate the challenges ahead and steer the country towards a more sustainable fiscal future.
By prioritizing debt repayment, Ghana can mitigate the risks associated with mounting debt levels and pave the way for a more stable fiscal future.
Mr Terkper’s pragmatic approach serves as a timely reminder of the importance of fiscal discipline in steering economic challenges. As Ghana charts its course forward, embracing Mr Terkper’s recommendations could prove instrumental in securing a prosperous and resilient economy for generations to come.
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