As the Nana Akufo-Addo administration prepares to govern the nation, one major challenge it will face is the management of Ghana’s growing debt stock.
By September this year, Ghana’s total debt stock had hit GH¢112.4 billion, while the budget deficit which is currently at 5 percent of GDP is predicted to grow by 1.5 percent by close of the year.
In his tenure as Finance Minister, Seth Terkper has always defended the management strategy set up by government through the establishment of the Sinking Fund.
But speaking to Citi Business News, Economist, Professor Godfred Bokpin was of the view that even though the concept of the sinking fund was laudable it is however not the most effective.
Grow the economy
“In Standards demand literature, Sinking Funds play a critical role ,and I do share a lot with the new debt management strategy but you see ultimately the most successful way to manage your debt is to grow your economy because at the end of the day you are saying that you are setting up a fund somewhere and we have to put some money into it . If we set out to generate that money having a sinking fund is not the solution,” he argued.
He maintained that even though the concept of the Sinking Fund has been employed by some countries as debt management strategy it has been used as supporting feature and not the main strategy.
“You must put money in the Sinking Fund to the extent that the Sinking Fund generates sufficient funds to refinance the loans. So if the economy is not growing and you keep adding to your debt having a Sinking Fund as your main debt management strategy is not the solution,” he cautioned.
“Having a strategy is one thing but making the strategy work is also another thing all together, and the implementation strategy that you have is also important. So at the end of the day you have to ask yourself how much are you putting into the sinking fund?,” he stressed.
Touching on the need to grow the economy, Prof. Bokpin maintained that growing the economy will consolidate activities t allow the economy generate funds to pay for the debt.
He pointed out that the pressures on the economy, resulting in the country using over 40 percent of its revenue to finance its debt is not economically sustainable.
“What is the generating capacity of the economy? Even in the present we have to look at how much we have to set aside just to service your debt. I think close to 40% of what you are able to generate that is your past revenue. You have to service your debt close to 45 % of it goes to wages and salaries. How much do you have left for public expenditure and also for your sinking fund provisions?, he asked.
“It’s something that you have to look at and ultimately the strategy will be to grow your economy. Grow it and make sure that you spend wisely. If you look at the annual spending budget funding amount in terms of the oil proceeds and the way we have spent it I don’t think that we have been prudent in the allocation of the annual budget funding amount,” he lamented.
By: Lawrence Segbefia/citibusinessnews.com/Ghana