Home / Debt stock to rise further with weak industrialization – Economists

Debt stock to rise further with weak industrialization – Economists

Economists have warned that the country’s rising debt stock will continue until the government changes the structure of the economy.

Latest figures released by the Bank of Ghana show that the country’s debt stock has reached 159.4 billion cedis.

This represents 65.9 percent of the GDP which is the total value of all goods and services produced within a country at a particular period in time.

But some economists Citi Business News has been engaging, believe the figure could rise even further when basic issues are not considered.

The Bank of Ghana’s data showed that between May and July this year, the government added about 5 billion cedis to the total debt stock.

This is from the 142.3 billion cedis that the country ended 2017 with.

But Economist with the University of Ghana, Adu Owusu Sarkodie believes the cedi depreciation and the impact of major recurrent expenditure such as wages and salaries and statutory payments, will lead to a continuous rise in the debt stock.

He is therefore seeking answers on how successive governments have appropriated the country’s borrowings.

“With the debt increasing from 36 to 159 billion cedis, we expect almost about a 120 billion cedis in the spate of six years. We want justification from this government and the previous ones on what they used the monies that they borrowed for,” he queried.

 Adu Sarkodie

Adu Sarkodie

Economist, Professor Godfred Bokpin couldn’t agree more on this.

Touching on the impact of debt servicing for instance, he said the budgetary allocation continues to have a toll on financing other priority areas.

For instance in 2018, the national budget allocated 13 billion cedis in interest payments for all of government’s borrowing.

“Once we cater for these two line items; wages, salaries, gratuities and debt servicing, the government is left with practically nothing to do all that they said they will do and all the promises that were given in 2016. So even in terms of meeting certain statutory transfers, government may have to borrowing to be able to meet those statutory transfers,” he explained to Citi Business News.

Prof. Godfred Bokpin - Head, Dept of Finance at UG

In nominal terms, Ghana’s debt is increasing.

As a result, some economists want the debt levels to be viewed in nominal terms to guide decision making rather than as a percentage of GDP.

But responding to this, Mr. Adu Owusu Sarkodie explained as:

“When we concentrate on the debt to GDP ratio alone, it is also going to mislead us because our GDP in recent times, has been influenced by oil and gas and Ghana’s share in the oil and gas is just about twenty percent. This year, Ghana is expected to earn about 3.3 billion dollars from the oil production against the benchmark of 65 dollars per barrel.”

Professor Bokpin however believes Ghana could escape the rising debt when the structure of the economy is changed.

“Ultimately, the most effective way to manage your debt is to grow your economy and the government must be looking at ways of oiling the growth drivers of the economy. But of course given our revenue challenges and given the huge infrastructural deficit, there is no way as a country we can sustainably do without borrowing,” he further remarked.

Source: citibusinessnews.com/Ghana

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