The latest statistics published by the BOG depicts a significant jump in government borrowing by GHC5billion in June. Government borrowed similar amount in March 2015, which bloated government debt stock to GHC88.2billion and a debt-to-GDP of 66.1%.
Total public debt stock as at June, 2015 stood at GHC94.5billion with debt-to-GDP at 70.9%. Out of a total of GHC5billion borrowed by government, GHC4.8billion came from external sources whereas only GHC0.2billion was borrowed from the domestic market. This in a way confirms government commitment to reduce domestic borrowing within the short to medium term but fails to explain government’s insatiable appetite for debt.
Meanwhile, the Ministry of Finance blames the unbridled government borrowing on the series of adjustments that government and the country has to make to emerge from its current macroeconomic challenges and reiterates that country’s debt is under control.
However, a careful technical analysis of the public debt stock statistics reveals a rather disturbing trend which may plunge the country into a debt trap. As per GN Research forecasts, government debt-to-GDP is expected to close the year at 76.6%instead of the 75.1% predicted by the IMF.
Given that the banking system holds over 50% of government domestic debt and the astronomical growth in public debt stock, the probability of government delaying in payment or defaulting is very high. This poses a huge threat to the financial industry.
Interest rates on money market instruments are expected to remain high and continue to stifle private investments for the remaining months of the year. This is also expected to further aggravate declines on the broader market. Thus, employment and output growth are expected to remain low with the latter falling below the revised target of 3.5%.
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