Ghana’s escalating debt has become a focal point of concern for economists, casting doubt on the nation’s financial sustainability and the debt management strategies of future governments.
The country’s debt has surged to GH₵742 billion, a significant increase from ₵608 billion in 2023. Without strategic interventions and prudent fiscal policies, experts warn that Ghana’s economic progress, particularly under the International Monetary Fund (IMF) programme, could be severely compromised.
In his mid-year budget presentation to Parliament, Finance Minister Mohammed Amin Adam reported that as of December 2023, the provisional central government and guaranteed debt stood at GH₵608.4 billion. This amount comprised GH₵351.1 billion in external debt and GH₵257.2 billion in domestic debt.
The rapid accumulation of debt has raised red flags among economists and financial analysts, who emphasize the need for immediate and effective measures to manage the situation.
Former Finance Minister Seth Terkper highlighted the need for tax reforms to address the burgeoning debt. He mentioned that proposals were made to consolidate various taxes, including VAT, COVID levies, and the GET Fund, to create a more manageable tax burden for citizens.
However, these proposals were submitted late and deferred to the mid-year review, leaving them unaddressed. Terkper also pointed out the adverse effects of exchange rate fluctuations and rising fuel prices on the economy.
The Call for a Halt on Borrowing
Economists like Associate Professor of Finance at Andrews University, William Kwasi Peprah, argue that the government must halt borrowing to manage the debt effectively and focus on stabilizing the cedi.
Prof William Kwasi Peprah explained that a high debt-to-GDP ratio negatively impacts the currency, leading to rapid depreciation of the Ghanaian cedi. “When you listen to all analysts, the major issue is that the government must reduce the expenditure patterns. When we say expenditure pattern, we are talking about capital expenditure, investment in projects, reduction in expenses, and payment of some major current items,” Professor Peprah stated.
Meanwhile, the rapid growth rate of Ghana’s debt is a critical issue. It leads to increased borrowing for development and current expenditures, which in turn exacerbates the debt situation. Economists warn that without significant changes to fiscal policies, the country could face severe economic instability. The debt burden not only hampers economic growth but also impacts the government’s ability to invest in essential sectors such as education, healthcare, and infrastructure.
Need for Prudent Fiscal Policies
To address the growing debt, experts advocate for the implementation of prudent fiscal policies. This includes reducing unnecessary expenditures, prioritizing essential projects, and ensuring that borrowed funds are used efficiently and effectively. Economists also stress the importance of enhancing revenue generation through improved tax collection mechanisms and broadening the tax base.
Ghana’s engagement with the IMF provides an opportunity to implement necessary reforms to stabilize the economy. However, for the IMF programme to be successful, the government must commit to strict adherence to fiscal discipline and transparency. The IMF’s support can help Ghana navigate through its debt challenges, but it requires a strong political will and commitment to implement the recommended measures.
Ghana’s rising debt stock is a pressing issue that requires urgent attention and strategic action. Economists are calling on the government to halt borrowing, stabilize the cedi, and implement prudent fiscal policies to manage the debt effectively. The proposals for tax consolidation and expenditure reduction are crucial steps towards achieving financial stability. With a concerted effort from the government, policymakers, and stakeholders, Ghana can address its debt challenges and ensure sustainable economic growth.
The future of Ghana’s economy depends on the decisions made today. It is imperative that the government takes decisive action to manage the debt and create a stable and prosperous economic environment for future generations. By addressing the root causes of the debt crisis and implementing sound financial practices, Ghana can overcome its current challenges and pave the way for a brighter economic future.
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