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Lead Economist at the World Bank Ghana Office, Mr Santiago Herrera is happy that Ghana’s debt profile is beginning to stabilize “under the IMF stabilization programme.”

According to him, “Ghana had already started controlling the primary deficit, and hoped that it will continue until 2017.”

“In 2012, the primary deficit was 8 per cent of GDP and it declined to 3 per cent in 2014. It is projected towards zero this year,” Mr Herrera said.

A confident Mr Herrera points out that rising revenue with falling expenditure coupled with Ghana’s stabilization programme with the International Monetary Fund (IMF) are helping to place the country’s debt within acceptable levels.

“The benefits of the adjustment programme with the IMF which are already being felt, have led to a drastic reduction of the fiscal deficit,” Mr Harrera says.  

Ghana’s total public debt profile, according to the Bank of Ghana (BoG) stood at GH¢88.2 billion as at March this year, up from GH¢76.1 billion in January 2015.

Out of the budgeted GH¢30.86 billion, total domestic revenue stated in the 2015 budget, as much as GH¢9.58 billion will go to settle interest on loans, representing about 31% of total domestic revenue.

Experts have expressed concern over the development where the budget for interest payments alone is more than three times the total budget for six ministries put together as captured in the 2015 budget.

Worse still, the interest payment for this year alone outweighs what the budget could possibly raise from total external loans and grants of GH¢6.75 billion and GH¢1.55 billion respectively.

According to renowned economist and lecturer at the Ghana Institute of Management and Public Administration (GIMPA), Dr. Raziel Obeng-Okon, all the loans and grants anticipated (GH¢8.30 billion) for 2015 will not be enough to service the total interest payments.

Dr Obeng-Okon however agrees with Mr Herrera over the improving debt situation and adds that on fiscal consolidation, the first quarter economic performance has been encouraging with the deficit as well as central bank financing well within targets.

“Revenue and grants were above targets while expenditures were below target, as the major items, including the wage bill, were contained within targets. Both balance of payment and current accounts balances improved slightly,” He adds.

These developments according to him resulted in a cash fiscal deficit equivalent to 0.6 % of GDP, against a target of 1.9 % during the first quarter of2015.  

“This may explain the improvement of Debt/GDP ratio from 67.1% in December 2014 to 65.3% by the end of March 2015,” he noted.

Good debt management is essential to economic development, the World Bank maintains.

 Both the International Monetary Fund (IMF) and the World Bank help to ensure that developing countries’ debt burdens do not overwhelm their ability to reduce poverty or provide essential social interventions.

Debt experts from the bank oversee debt relief, advise countries on how to structure and schedule debt and help fit their debt into sustainable fiscal planning.

Government itself distressed over the high debt, says its debt management strategy will continue to focus on providing a more cost-effective access to the international and domestic capital markets to meet its development needs.

The 2015 budget thus introduced key initiatives to consolidate sustainability and efficiency in debt management. 

Finance Minister, Seth Terkper said the Sinking Fund will be operationalized to manage the orderly redemption of Sovereign Bonds and other debt instruments.

Under the Sinking Fund, government will set aside funds (in excess of the cap on the stabilization fund) to liquidate maturing debts.

Other experts maintain that the best option for a country is to plan its debt portfolio, such that it does not get to a stage where additional debts are used to fund existing debts plus interest.

They argue that debt funding must be used prudently to grow the productive capacity of the economy.

As it stands now, the government cannot immediately get out of the debt-trap, since maturing obligations cannot be paid out of its relatively low revenue base.

Restructuring of the debt from short to long term may bring some respite, but can only be sustainable, if the short term relief is combined with strong fiscal consolidation.

The experts insist that while swapping old debts with new ones may be preferable, it is important that any surplus of the new debt over and above the old debt go into projects that can offset the debts. 

“Otherwise, the restructuring would only lead to growing the debt without a corresponding growth in productivity or GDP, leading to a worsening situation of the debt-to-GDP ratio,” they observe.

Other experts as Economist, Dr John Gatsi are however of the view that it is in order to make interest payments on debts, since it shows that the government is creditworthy.

“Creditworthiness is a key requirement of measuring the reputation of the government, bearing in mind that the debts of which the government is paying the interests on have largely contributed to the development of the country, in terms of infrastructure, and social development,” he added

In a situation where revenue levels are low and the supply of foreign currency also restrained, the high interest payments are already impacting negatively on the performance of the cedi and therefore pushing up the trend in interest rates in the country.

Concerned about the predicament of the Cedi, fueled by the effect of the excessive borrowing, Head of the Finance Department of the University of Ghana Business School, Dr Godfred Bokpin early this year asked the debt management division of the Ministry of Finance to draw up a plan to arrest the surge in exchange rate volatility before issuing this year’s $1 billion Eurobond.