The Danquah Institute has followed with keen interest the narrative across the different media landscape about the Ghanaian economy, with concerns being raised about excessive borrowing and the downgrade by some global rating firms.
We believe that the spin being put on about a potential default on debt repayments, and that the Ghanaian economy is being badly managed is untenable and skewed, and there must be a conversation on this.
In our view, the greatest, practical threat to Ghana’s ability to service its debt lies not only in the depths of government’s pockets and how the servicing of debts is done per se, but it largely also falls on the capacity and appetite of the opposition in our Parliament to frustrate Government’s revenue mobilization efforts and the signals that this sends to investors.
What are the material facts? Undoubtedly, we must realise that our current debt level has been worsened by the global pandemic, COVID-19 and its related expenses. It is common knowledge that all countries globally have been severely hit by COVID-19, which dramatically increased unplanned social spending to protect lives, notwithstanding, the plunge in revenue.
For example, according to the UK House of Commons, additional public spending due to the COVID-19 pandemic was £167 billion which was spent on public services such as the NHS, support to businesses, and support to individuals.
In Ghana, we are experiencing our share of the impact of COVID-19 and the effects on the economy and on our debt. Ghana like other countries introduced a number of social interventions to sustain livelihoods and businesses.
The pressure on our debt situation however started as a result of strategies we took to address some bad economic policies in the past that needed to be corrected to restore GDP growth and create jobs. The strategies include:
- The clean-up of the financial sector, which added about 5-6% to the debt stock, and which could end up costing over GHS30 billion.
- Payments for non-utilized Independent Power Producers (IPP) contracts which were signed under the previous NDC government without recourse to excess capacity and pressure on the fiscals, which added about 10% to public debt over the past 5 years.
If these are discounted from the public debt, debt to GDP would have been around 68% (in addition to the COVID-19 shocks). It is important to note that the spending to ensure a stable financial and energy supply sector was important to recover growth, enable the private sector business to have a conducive environment to work and save jobs.
This also enabled us to build resilience before the COVID-19 shocks set in. Clearly, these decisions were important in ensuring growth and jobs, and there is evidence of this shown by the quick recovery post COVID-19, with annual GDP growth according to the Ghana Statistical Service (GSS) expected to increase to the region of 5-6% in 2021, while many African countries were still in lower growth rates.
We expect to see more dividends of these investments in the medium to long term. Already, Ghana’s pre-COVID-19 GDP was among the strongest on the continent averaging 6.5% in 2019 and remains so post-COVID-19, largely due to the sound macroeconomic policies and investments undertaken by the Government.
Provisional figures show that the Ghanaian economy grew at 3.5% during the first half of the year and over 6.6% in the third quarter of 2021. This renders the Ghanaian economy as one of the fastest growing economies in the world today.
Again, Ghana’s debt accumulation which stood at 33.6% as at the end of 2020 significantly declined to 18.13% as at the end of 2021. This is also clear evidence of Government’s commitment to reducing the growth of Ghana’s debt. We expect a further reduction in 2022 following the comeback to surplus on the primary balance-an important fiscal indicator.
Evidently, debt management strategies have over the past 5 years have been anchored both locally and internationally on extending the yield curve, gradually reducing interest rate on primary issuance, and shifting roll over pressures to ease any repayment pressure.
From the Debt Strategy report, Ghana’s maturity profile shows that there are no significant pressures over the next two years, while the use of the sinking fund strategy, also allows the economy to build up funds towards future maturities.
The authorities have thus shown that they have a sustainable debt management strategy. Our analysis also shows a credible plan in the 2022 budget to mobilise revenue to fund Government spending. This will also mean that Government and its agencies must manifestly be seen to be prudent in the use of the funds raised from taxpayers.
It is our guided opinion then that, despite the impact of the COVID-19 pandemic, Government has managed the economy of Ghana extremely well and is on a recovery trajectory with a GDP that has consistently outperformed the Sub-Saharan African average.
A balanced conversation between debt and economic progress shows that the future prospects of the Ghanaian economy are only bleak if some politicians are not minded to put the national interest over and above the lure to score partisan political points.
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