Economist and the New Patriotic Party’s Vice Presidential Candidate Dr. Mahamadu Bawumia has sought to rubbish Finance Minister Seth Terkper’s claims that government is engaged in “smart borrowing.”
Some economists and financial analysts have raised serious issues about government’s rate of borrowing, ostensibly for capital expenditure.
However speaking at a lecture dubbed “The IMF Bailout: Will the Anchor Hold?” at the Central University College, Dr Bawumia said the most significant reason Ghana resorted to the International Monetary Fund (IMF) for a bailout is because of unsustained borrowing and debt stock.
He described Ghana as a Highly Indebted Middle Income Country (HIMIC).
Seth Terkper in an earlier interview with Citi News downplayed worries over government’s continuous borrowing which economists and analysts say the country will struggle to repay.
“Yes, debt is always a concern, it’s a concern for households, it’s a concern for businesses and it must be a concern for government…We’re moving to project basis for our loans,” he said.
Mr. Terkper added that, “It is when you put the repayment of debts on the taxpayer that you struggle to repay.”
According to Dr Mahamadu Bawumia however, at 67% of GDP, Ghana’s debt stock has crossed the critical 60% of GDP level that developing countries with limited access to capital flows should worry about in terms of debt sustainability.
The former Deputy Governor of the Bank of Ghana said “In fact, Ghana is right back to the debt unsustainability that led to HIPC. However, HIPC debt relief will not be available again.”
He revealed that Ghana has recently been sanctioned by the African Development Bank (AfDB) for non-payment of debt obligations due and this means that signature of new AfDB loan agreements, disbursements on all AfDB on-going projects and the granting of any new loans have been suspended until the situation is rectified.
The sanctions according to him were effective in January 2015.
“In this regard, Ghana regrettably joins an exclusive list of nations currently under AfDB sanctions. The other countries are Somalia, Sudan, Zimbabwe, and Djibouti. Ghana’s arrears on its AfDB debt obligations only serves to emphasize the pressure on government cash reserves as well as the poor debt management.”
The interest burden of this high public debt stock has proven to be extremely high and that in 2015, interest payments alone on the debt would amount to GHC9.57 billion.
“One can only shudder to think what “not so smart borrowing” would look like. The Minister of Finance has also recently stated that the increase in the debt stock “is not our fault”. Really? When it was this same government that responded to warnings on the rate of borrowing by saying it had the capacity to borrow and would continue borrowing? How then can it not be their fault? Who increased the debt stock by GHC66.6 billion in six years? Is it the fault of some dwarfs? Who did the “smart borrowing?” he asked.
Interest payments according to him have increased from GHC 679 million in 2008 to a projected GHC9.57billion in 2015 (an increase of 14 fold).
Ghana’s total debt in 2008 was GHC9.5 billion but interest payments in 2015 alone would amount to GHC9.5 billion according to Dr Bawumia.
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By: Nana Boakye-Yiadom/citifmonline.com/Ghana