The Institute of Economic Affairs (IEA) has welcomed Bank of Ghana’s endorsement of its proposal to cap Government borrowing to help rein in the public debt.

The Governor, Dr. Ernest Addison, was reported to have said that he “supports discussions on capping borrowing” as part of his press briefing on Thursday, 6^th October, 2022 on the decision of the Monetary Policy Committee.

According to the IEA, this is in view of deep concerns about the country’s public debt after the World Bank released a report stating that Ghana’s debt-to-GDP ratio could hit 104.6% by the end of the year.

A statement issued by the IEA noted that as the Business & Financial Times (B&FT) correctly reported on Monday, October 10, 2022, the IEA first made the call for the imposition by Parliament of a cap on borrowing (or debt) in the Institute’s Comments on the 2022 Budget in November 2021.

The cap, the IEA suggested, could be incorporated into the Parliamentary Appropriations Act, which approves Government’s annual total spending, or introduced as a rule in the Fiscal Responsibility Act in addition to the deficit rule.

In making this proposal, the IEA expressed concern that the borrowing implied by budget deficits seem to be invariably breached with impunity.

“Thus, it was necessary to tie the hands of the Finance Minister and insist that, any additional borrowing by him beyond the budget estimates or the new ceiling should be subject to the approval of Parliament just as pertains in the United States. This is the only way to rein in our debt and keep it at a sustainable level on a durable basis so as to avoid the debt service, which currently absorbs over 40% of tax revenue, from overwhelming the budget.”
IEA

Since first making the suggestion in November 2021, the IEA has repeated the call in various subsequent communications.

“The Institute wishes it to be further known that, as part of the CSO Economic Governance Platform, it has made this suggestion available for consideration by the IMF Team currently negotiating a possible financial programme with the Ghanaian authorities.”
IEA

In that submission, the IEA also called for strict enforcement of both the ceiling of 5% of GDP on the fiscal deficit as well the ceiling of 5% of the previous year’s revenue on Bank of Ghana’s lending to Government, both of which have debt implications.

New committee to provide inputs on debt management

Sustainability diagnostics of Ghana’s debt which currently stands at GH¢402.4 billion (68% of GDP) as of the end of July 2022, is currently being carried out by the IMF as the country seeks balance of payment support.

Following the Press Briefing held by the Ministry of Finance on 26th September, 2022, the Ministry of Finance (MoF) and the Bank of Ghana (BoG) have constituted a 5-Member Consultative Committee consisting of prominent financial services professionals to lead extensive stakeholder engagements across all the key segments of the financial sector.

The Committee, chaired by Mr. Albert Essien, will be consultative and will among other things, lead discussions with the financial services industry and other stakeholders to provide industry-wide inputs and transmit industry concerns on debt management strategy to the MoF and BoG. The expectations and goals are to ensure orderliness and confidence in the Government’s ongoing negotiations with the IMF.

In a statement, the Ministry of Finance noted that the stability of the domestic financial ecosystem is critical to a successful IMF-supported economic programme as such Government will take all necessary steps to protect the sector “as we have done in the past”.

“We need the support and trust of all Ghanaians to ensure that a historic arrangement is reached with the IMF”, the Ministry of Finance noted, adding that “We are confident that such engagement and collaboration will enable us to recover very quickly and strongly from our current macroeconomic challenges”.