Ghana’s debt distress is weighing heavily on the operations and survival of businesses in the country, economists and some research institutions have warned.
According to them, Ghana’s rising debt stock and interest payments have compelled government to increase taxes and introduce new ones simultaneously.
Businesses in the country have been lamenting the multiplicity of taxes imposed on them by government while some unions have staged protests to drive home their frustration over the hostile business environment, calling on government to reduce taxes considerably.
Ghana owes a total of GH¢97.2 billion (as at December 2015) which is 72.9 per cent of the country’s Gross Domestic Product (GDP) according to the Bank of Ghana (BoG). The equivalent in dollar terms for the same period stands at US $25.6 billion.
Many have described as alarming the pace at which Ghana’s debt stock continues to increase. For instance the total debt stock as at November, 2015, stood at GH¢93billion meaning as much as GH¢4billion was added between November and December of the same year.
Less than three months into 2016, government has already borrowed GH¢17.36 billion from the domestic market and intends to issue more debt instruments as the year goes on.
The high rate of borrowing has contributed to very high interest rates, much to the distress of Ghanaian businesses.
“Government’s own cost of borrowing is forcing businesses to pay high premiums on the loans they take, thus increasing the cost of doing business,” says Research fellow with the Institute of Fiscal Studies (IFS), Mr Leslie Mensah.
The country’s fourth Eurobond was issued at a disappointing 10.75 per cent when neighbouring Ivory Coast issued its bond at 6 per cent.
The IFS describes Ghana’s debt to GDP ratio as too high because “in the past three to four years, Ghana’s debt has grown at a very rapid pace; as at 2012, we were under 50 per cent in terms of the debt to GDP ratio meanwhile in 2006 the debt was 26 per cent of the size of the economy.”
From 2012 to 2015, the ratio ballooned from 48 to 72.9 per cent representing a 25 percentage point increase in a shorter period of three years.
This means the country’s debt increased by 26 percentage points within 6 years (from 2006 to 2012) and by 25 percentage points between 2012 and 2015.
“Ghana’s predicament is precarious because if we add more to it at the same pace, then the economy will virtually collapse in a short time,” the Institute warns
According to him,the cost of debt servicing is a major burden on government, becoming the main driver of government spending (where interest payments are next only to wages).
"To finance interest payments, government has been increasing taxes, “which is the reason for the tax hikes announced early this year and such imposition and increment of taxes is hurting businesses,” Mr Mensah pointed out.
The 2015 budget statement made provision forGH¢9.35billionfor interest payment, an amount well more than the budgetary allocations made to six ministries combined. Additionally, the budget for interest payment of GH¢10.49 billion (2016) is more than what government could possibly raise from total external loans and grants for the 2016 financial year.
If this continues, all the loans and grants anticipated will only go to service interest payments.
According to Dr RazielObeng-Okon of GIMPA, this may be a signal that Ghana is borrowing to refinance interest repayments which this is not sustainable in the medium to long term.
“There is an increasing debt service to revenue ratio and this will require swift fiscal adjustments in order to put the economy on a path of sustainability in the medium term,” he said.
Interestingly, government has recently been embroiled in vehemently disputing figures on the country’s debt stock.While government insists its debt stock is not more than US$24 billion, former Deputy Governor of the BoG, Dr Mahamudu Bawumiaput the debt accumulated over the last seven years at $37 billion.
The row over the debt has been describedby economists as needless. Rather,bold measures must be taken to reduce the debt levels substantially.
“Government must find ways and lasting solutions of reducing the public debt stock instead of fighting over figures,” Director of the Institute of Statistical Social & Economic Research (ISSER), Professor Felix Asante stated.
Prof Asante was worried about what he described as waning investor confidence and downgrading by ratings agencies should the rate of borrowing persist.
“If we are able to grow the GDP more than we grow the debt then the ratio of the debt to the GDP will fall,” Dr Obeng-Okoh observed.
The Economist Intelligence Unit projected in 2014 that “Ghana’s need to finance large fiscal and current-account deficits will put pressure on the sovereign risk rating and could result in a downgrade, especially if gold and oil prices were to fall by more than currently expected. Fiscal management will remain challenging for the next few years.
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