Banking consultant Dr. Richmond Atuahene has raised alarm over the government’s relentless borrowing.

This spree, according to Dr. Atuahene, is not only unsustainable but is also pushing many banks towards fiscal instability and potential bankruptcy.

Dr. Atuahene’s concerns center around the government-backed domestic debt exchange programme, which, in his view, has become a gateway for reckless borrowing. He argued that this program, while ostensibly aimed at managing the country’s debt more effectively, is being exploited irresponsibly. The consequences of this misuse are severe, placing a significant strain on local banks and undermining the stability of the Cedi, Ghana’s currency.

“The domestic debt exchange programme was intended to streamline and manage our national debt. However, what we are seeing is a government that is using this as an opportunity to borrow excessively without adequate checks and balances. This reckless borrowing is not only eroding the capital base of our banks but is also creating a precarious situation where many of these financial institutions could face insolvency.”
Dr. Richmond Atuahene

The crux of Dr. Atuahene’s argument is the unsustainable nature of the current borrowing practices. When the government borrows excessively, it often issues bonds that local banks purchase, anticipating stable returns.

However, the analyst noted that if the government fails to manage its debt effectively and defaults on these bonds, the repercussions for the banks holding them are dire. The financial institutions are left with devalued assets, undermining their balance sheets and leading to liquidity crises.

“Ever since we went through the domestic debt exchange programme, the government has borrowed as if it’s nobody’s business. They use the short-term to finance the long-term as if nothing is going to happen and the way we are going, if we continue the trajectory that we are taking, the banks are going to be in trouble because the government is out of the financial market and it is not paying its outstanding debts.

“When I hear them say the economy is growing, from the figures available, I don’t see the growth anywhere because it is the private sector that grows the economy and not the government sector but unfortunately, the private sector is deprived of capital and cannot expand business.”
Dr. Richmond Atuahene

Cycle of Borrowing Has A Knock-On Effect On The Value Of The Cedi

Moreover, Dr. Atuahene pointed out that this cycle of borrowing has a knock-on effect on the value of the Cedi. As the government borrows more, it often needs to print more money, leading to inflationary pressures. This, in turn, reduces the purchasing power of the Cedi, affecting every sector of the economy and further straining the banking sector, which has to deal with the resulting economic instability. “The relationship between excessive borrowing and currency devaluation is well-documented,” Dr. Atuahene stated.

“When the government borrows irresponsibly, it not only risks defaulting on its debt but also undermines the value of the Cedi. This double-edged sword is particularly dangerous for our banks, which are caught in the middle of these economic pressures.”
Dr. Atuahene

The situation calls for urgent intervention and a reevaluation of the government’s borrowing strategies. Dr. Atuahene advocated for a more disciplined approach to borrowing, emphasizing the need for transparency and accountability in the management of national debt.

He suggests that the government should adopt more stringent measures to ensure that borrowing is within sustainable limits and is used for productive investments that can generate returns to service the debt.

“Transparency and accountability are key,“ he insists. “The government must establish clear guidelines and limits on borrowing, ensuring that any debt taken on is used effectively and sustainably. This will not only protect our banks but also ensure the long-term stability of our economy.”

Dr. Atuahene’s warning is a clarion call to both policymakers and financial regulators. Without immediate and decisive action to curb reckless borrowing, the fiscal struggles facing banks could escalate into a full-blown financial crisis. The health of the banking sector is critical to the overall economy, and protecting it from the adverse effects of excessive government borrowing is paramount.