Data released by the Bank of Ghana at the weekend reveals that the country’s public debt has risen to GHc198 billion, equivalent to US$38.9 billion as at the end of March this year. On the face of it, this is not particularly worrying. Afterall this translates to just 57.5 percent of Gross Domestic Product, which is far lower than the situation as at the middle of the decade when the debt ratio exceeded 70 percent of GDP.
However, this improvement is simply the result of the latest rebasing of the economy which increased GDP by some 26 percent without any change in actual economic output. Indeed, it appears that rebasing of the economy, although proper, has become a regular ploy used by successive political administrations to create new fiscal space for borrowing.
This is precisely what the incumbent government is now doing. It is instructive that by the end of March 2018, using rebased economy figures, the public debt to GDP ratio was just 49.5 percent. This means that over the one-year period in between, the public debt grew by eight percent of the statistically enlarged GDP.
It should be considered that even though the recent rebasing of the economy has given government new fiscal space for further borrowing, at least on paper, it has not in any way increased Ghana’s capacity to service the increasing public debt. Indeed, even though the economy is growing faster than at any other time since 2011, Ghana’s export revenues – which are needed to service both the external debt component and a third of the domestic debt which is held by foreign investors – actually fell during the first four months of 2019 as compared wit the corresponding period of 2018.
To be sure, foreign creditors are not deceived by the statistical improvements in Ghana’s public debt situation, as conjured by rebasing of the economy. Rather, they are playing along because of the potentials being created by increasing oil production, which effectively amount to significant extra revenue for the public purse. Indeed, the timing of Ghana’s Eurobond issuances is illuminating in this regard. For instance, Ghana’s very first visit to the Eurobond market was in late 2007, just a few months after the Jubilee field was discovered, the country’s latest visit was in March this year, barely a month after the largest single oil discovery in Africa was announced by Aker Energy.
The incumbent government correctly pointed out that the rate at which its predecessor in power, the Mahama Administration was taking on new public debt was inordinate. But after showing admirable restraint during its first year in power, it appears to increasingly be following the same trajectory, albeit still as a slower, but now accelerating pace.
Ever since Ghana approached the end of its medium-term Extended Credit Facility programme with the International Monetary Fund, the foreign investment community has been exhibiting open disquiet about the country’s tendency to lose its fiscal discipline, especially in the run up to general elections. This newspaper, along with government itself has been at pains to reassure investors that fiscal discipline will not exit alongside the IMF itself.
However, government has to prove this with its actions. While we endorse government’s strategy of measured economic expansionism to accelerate the flagging economic growth rate and create direly needed jobs, we maintain that it is the private sector that should primarily finance it, not renewed inordinate public sector borrowing.
This government promised to reduce the public debt. We call on it to live up to its words rather than continue to increase it inordinately as it has now started doing.