An Economist and Director of the Institute of Statistical, Social, and Economic Research (ISSER), Professor Peter Quartey has disagreed with the International Monetary Fund’s (IMF) latest projection that Ghana’s economy will end the year with a debt to GDP ratio of 76.7%.
He was of the firm believe that Ghana’s debt to GDP ratio would not reach such unsustainable levels by the end of the year.
He, however, said the IMF’s projection would be realised only if the government continues to borrow more to finance its expenditure projects since election years in the country are usually characterized by high levels of government expenditure.
“I don’t know the basis they used to do such projections but I do know that government debt has been a little above 70%, so I don’t know how the IMF is making its projections. Having said that, it may be possible If the government continues to borrow to finance its capital projects because in an election year we all know what happens. But as to whether we will get to that level, I don’t think we will get to such a level. Of course, the government may overshoot its targets. So maybe something around 70%”.
The IMF in its current Economic Outlook for the Sub-Saharan African region projects Ghana’s debt-to-GDP ratio for 2020 at 76.7%.
The recent forecast represents a 13.9 percentage point increase in the country’s debt-to-GDP ratio relative to 62.8 percent recorded in 2019.
The Fund however expects the country’s debt-to- GDP ratio to decline marginally to 74.7 percent in 2021 in its recent forecast.
According the data provided by the IMF, Ghana’s debt-to-GDP ratio averaged 44.0 percent between 2010 and 2016. It however increased to 58.3 percent in 2017 and rose further to 59.1 percent in 2018.
However, recent figures from the Bank of Ghana show that the total stock of public debt has increased from GHS 258.8 billion in June 2020 to GHS263.1 billion at end of July this year. As a percentage of GDP, the current figure represent 68.3 percent as compared to 67.2 percent in June.
The Bank of Ghana’s provisional data on budget execution for the first seven months, showed an overall budget deficit of 7.4 percent of GDP, against the revised target of 7.2 percent of GDP as the COVID-19 pandemic continued to impact fiscal operations.
The primary balance also recorded a deficit of 3.7 percent of GDP, above the planned target of 3.4 percent of GDP. Over the review period, total revenue and grants amounted to GH¢27.7 billion compared with the target of GH¢26.8 billion. Total expenditures and arrears clearance amounted to GH¢56.2 billion, above the target of GH¢53.3 billion.
The total stock of public debt has for the past seven months of the year been on the rise. In January, the stock of public debt stood at GHS219.6 billion representing 57.0 percent of GDP. This, however, increased steadily to end the first quarter at 61.4 percent, with a nominal value of GHS236.7billion. As at the end of the second quarter in June 2020, public debt galloped to GHS 258.8 billion which accounts for 67.2 percent of the county’s GDP.
According to the current data released by the BOG, the domestic debt component of the total debt stock has increased from GH¢122.1 billion (31.7% of GDP) in June to GHS125.1billion (32.5% of GDP) at the end of July. The domestic debt as at the end of January 2020 stood at GHS107.5 billion representing 27.9 percent of GDP.
Conversely, external debt was GH¢138.0 billion (35.8% of GDP), representing 52.4 percent of the total public debt. In July 2019, external debt was GHS107.8 billion representing 30.9 percent of GDP.
The IMF has classified Ghana’s economy as standing a high risk of being a debt distressed economy.
According to Prof. Quartey, that tag has been there since 2015 because our debt has increased considerably over the years. He pointed out that upon attaining a middle-income status, Ghana no longer gets concessional aid anymore, and so it has to borrow from the IMF.
“…unless we can increase revenue mobilization, that debt distress condition will not change”.
On the implications of a country being declared as high distress, Prof. Said, “it a signal or warning to potential lenders that we are a risky country, that means your risk level is higher and therefore if I’m lending to you I will factor in that risk component and charge a high-interest rate. It also affects the interest rate and debt serving; that is how much we use to service our debt”.
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