The decision by the group of the world’s richest 20 countries to suspend bilateral and multilateral debt servicing by the world’s poorest and most vunerable 76 countries – of which Ghana is one – presents a crucial opportunity for this country in its efforts to ride the economic storm created by the ongoing coronavirus pandemic.
Although precise figures are not yet available to the public, this newspaper estimates that Ghana stands to avoid having to pay some US$350 million in principal and interest falling due this year on its multilateral and bilateral debt owed to official sources, these being development partner governments and multilateral aid agencies such as the World Bank, International Monetary Fund and the African Development Bank. At current exchange rates this amounts to some GHc1.95 billion.
This was not part of the new fiscal framework laid out recently to parliament which has subsequently approved it because at that time, the G-20 had not affirmed the proposal promoted by the IMF and the World Bank. It will be captured in the mid year budget review scheduled for July though, which will effectively be a whole new budget.
Conservatives, intent on retaining some semblance of fiscal consolidation, even in the current extraordinary, trying times, will recommend that a substantial part of the debt servicing savings go into lowering the fiscal deficit from the 6.6 percent currently being targeted to a level much closer to the 5.0 percent cap set by the Fiscal Responsibility Act, but which has sensibly been put aside this year because of COVID 19’s effects. Indeed, if all the impending debt servicing savings were used for this, the fiscal deficit could be brought down to about 6 percent.
To be sure, proponents of this strategy have a point; the savings will emanate from a postponement of debt servicing not an outright cancellation or even a reduction. Thus, it appears prudent to lower the debt-financed deficit for this year, ahead of higher debt obligations when those suspended payments eventually fall due later.
However, this newspaper believes that preparing the economy’s capacity now, for those eventual higher debt payments later, is the most important strategy option available. Both the Ministry of Finance and the Bank of Ghana now realize that the earlier projections of economic growth falling to about 2 percent of GDP, because of COVID 19 were overly optimistic; the spectre of an outright economic recession is now a clear and present danger.
Therefore, government needs to spend as much as it can get its hands on as an economic stimulus to avert a recession. Actually, the stimulus to be derived from the GHc1.2 billion Coronavirus Alleviation Programme, is grossly overstated – about half of it is going into areas such as incentivizing frontline health workers and subsidizing households public utility bills, which will not enhance actual economic productivity. Only the GHc600 million in soft loans to SMEs truly stands to stimulate the economy.
The debt servicing payments to be saved could more than triple this and this would be crucial in averting a recession. The key consideration here is that the more the true stimulus spending, the more the jobs that would be saved. Unemployment is already Ghana’s biggest single economic challenge and the coronavirus pandemic stands to further increase the problem drastically.
Before the arrival of COVID 19, Ghana’s economy was on the rebound. That trend needs to be protected at all costs.