The Africa Centre for Energy Policy (ACEP) has called on the government of Ghana led by the President of the republic, Nana Addo Dankwa Akufo-Addo to cut back on deficit spending.
According to the energy policy center, though the country’s successful International Monetary Fund (IMF) deal may restore confidence in the economy and ensure macroeconomic stability, it will only be in the short term.
ACEP, moreover, believes that the bailout from the Fund cannot be a panacea to the underlying fiscal indiscipline that has characterised Ghana’s public financial management. ACEP, therefore, recommended that the country should align its expenditure with its revenue to reduce deficit spending.
According to the Africa Centre for Energy Policy, the country’s 17th appearance at the IMF, calls for apolitical conversations on the drivers of Ghana’s debt and the way forward towards debt sustainability and averting an 18th IMF programme.
Given this context, ACEP noted that it conducted a study that identified and analysed the primary drivers of Ghana’s debt and proposed long-term solutions aimed at preventing a repetitive cycle of relying on IMF assistance.
This was revealed at a town hall meeting organised by ACEP to share the findings of the study to improve public understanding of the state and drivers of Ghana’s current debt situation to enhance advocacy for reforms.
The programme also sought to increase media, and by extension, public understanding of the primary causes of Ghana’s current debt and the required fiscal measures necessary to engender long-term debt sustainability.
The Increasing Public Debt
Dr. Charles Gyamfi Ofori, Policy Lead, Climate Change and Energy Transition at ACEP, noted that the increasing public debt has resulted in substantial interest payments, which have consumed a significant portion of Ghana’s domestic revenues.
Dr. Charles Gyamfi Ofori intimated that relying merely on gross domestic product (GDP) as a benchmark is insufficient, particularly when the disparity between expenditure and revenue widened from 21 per cent in 2018 to 52 per cent in 2021.
The Policy Lead, Climate Change and Energy Transition at ACEP, suggested that government must implement various tax policies to improve domestic revenue mobilisation and insulate the economy against debt distress.
Dr. Charles Gyamfi Ofori added that the government also introduced expenditure-cutting measures, including cutting salaries for ministers and heads of State-owned Enterprises (SOEs) by 30 per cent.
However, these measures, Dr. Charles Gyamfi Ofori noted, proved ineffective in achieving economic sustainability and maintaining the government’s resolve not to return to the International Monetary Fund (IMF).
“Government therefore had to seek a $3 billion financial bailout from the IMF, marking the 17th time the country sought assistance from the Bretton Woods institution.”Dr. Charles Gyamfi Ofori
Dr. Charles Gyamfi Ofori noted that to help break the cycle of IMF support, government must among other things, establish mechanisms to assess the capacity of projects to deliver value that facilitates loan repayment.