Ghana's debt distress threatens economic livelihoods of its citizens

What is the most important issue in Ghana today? It is four letters long. Go on be honest. How many of you thought it was food or even debt straight away without any pause for thought?

Yes it is DEBT, and it is the unsustainable type.

I ask the question because it seems we have come a long way as a country in the past 10 years as a country from HIPIC (Highly Indebted Poor Country Initiative) to unsustainable debt.

Recent narratives of more excessive new borrowing from the Ghana Parliament for various projects, shows our country and its leaders appetite for more and more extortionate and unaffordable foreign loans, and sovereign guarantees is undimmed , even though these thoughtless actions have greatly impacted on the stability of our currency, the new Ghana Cedi. These actions have brought into sharp focus the scale of the crisis in Ghana’s financial and economic wellbeing.

An announcement last week by the Bank of Ghana that Ghana’s public debt increased about GH Cedi 5.2 billion to Gh Cedi 63.6 billion means within a short period of time our national debt stock has shot up by Gh Cedi 11.5 billion, that is 22% . This is all in the light of the fact that Ghana was granted debt relief and two thirds of the country’s debt service obligations worth $3.6 billion dollars were cancelled by multilateral institutions and foreign donor countries it was indebted to in 2006. Now Ghana Government debts as of 2014 is close to 60% of GDP climbing steadily to hit the maximum global rank of 60, climbing from 43.7% in 2008. Now Ghana is even borrowing to restructure or refinance previous debt, like the $1 billion dollar Eurobond Loan it acquired in 2013. How did a country so rich in natural resources and potential get to this stage I hear you ask?

Bad governance and poor executive making decisions will be my answer.

Not long ago Ghana had a positive economic future according to the World Bank and IMF. The narrative of Ghana Rising was all over the international financial press analysis about African Economies. Ghana’s once mighty Ghana new Cedi, which in 2007 was pegged to the dollar at 91 pesewas to the dollar, has fallen to Gh new cedi 3.33 cedi to the dollar and increasingly achieved infamy as the worse performing currency in the world. The slumping currency is fuelling inflation. The impact on citizens economic wellbeing, has become so severe to the point that well-meaning citizens , who invested in the new Ghana Cedi in 2007 , have seen their wealth and savings totally wiped off. Where is the justice , I hear you ask?

In this stern age all countries are operating and trying to survive in a Globalized World setting and as a result every international economist or financial analyst, interested in development economics of the third world developing countries, is scratching their heads to understand just how Ghana’s once relatively golden economy is now falling very fast at a rate which is unsustainable and alarm bells are now ringing. Ghana ‘s economic downturn is “self inflicted” because of its addiction to excessive debt and borrowing.

Now the international financial press is filled with stories about Ghana’s current financial meltdown which has necessitated the Government to call in the IMF, international monetary fund for assistance.

Despite all this, and the severe impact of excessive borrowing on the currency, Ghana Government and its leaders and economic policy makers are still signing up to more new and increasingly more extortionate loans at higher borrowing costs like the latest Eurobond 2014 Loans.

Ghana is not only borrowing from the World Bank and IMF but increasingly borrowing at unsustainable interest rates from private lenders and foreign banks. Though the evidence increasingly shows that borrowing at reckless levels is even going to have severe adverse impact on Ghana’s fragile economy, the leaders and policy makers do not think so and keep borrowing more and more.

It appears the discovery of oil has encouraged reckless borrowing and spending in the last six years but most of the monies borrowed and spent have been either unproductive or have disappeared from the national treasury.

A case in point was the $125millon dollars that was borrowed as part of the Eurobond package during Ghana’s first foray into the international Eurobond market in 2007, when the country became the first in sub-Saharan Africa to float a 10 year Eurobond of $750 million Dollars. According to World Bank and IMF documents, $125million Dollars of that money was earmarked to resuscitate the Ghana electric Power generation barge “Osagyefo”, to bridge the energy shortfall the country has been experiencing. Unfortunately after seven years, the Power Barge is still rusting away on a river in the western region of Ghana whilst the monies cannot be accounted for. Neither by the current government or parliament who keep approving every loan agreement placed in front of the house without asking even the most basic relevant questions.

The question then comes to mind, how does Ghana get out of the yoke of these debts?

Call me naïve. Call me old fashioned or call me a moaner but surely the word thrift affordability and discipline seems to have vanished from our collective vocabulary. If we are to get over our current unsustainable debt burden , we need to restart the debate about the break neck speed at which Ghana has been borrowing money and using its natural resources, oil, gold, Cocoa, as collateral. According to the world credible economists intelligence unit, Ghana’s external debt climbed from $3.32billion dollars in 2006 after HIPIC to $9.7billion in 2011 and projected to reach$18.5billion dollars in 2018. Both our Government leaders and the debt and loan contractors, especially the private lenders and other financial intermediaries are responsible. Some of them know we cannot realistically pay these monies back but they keep selling us these financial products that would eventually not be in our long term interests. Therein lies the moral hazard.

The worrying thing for me is that, Ghana government has now mortgaged the future of its citizens, children and yet unborn to excessive debt but still spending beyond its means “like a drunken sailor”. Ghana would always have a bad deal in these relationships, especially with private lenders on the international financial markets, because there are unequal capacities between the parties.

Therefore we need to have a discussion about the real costs of these excessive borrowings. We need a debate and consensus, not the SENCHI one, on how far a country’s leaders and state institutions, can draw the nation into unsustainable debt stock to the detriment of everyone. We need policy actions that can contribute to rectify these serious anomalies in our development and nation building system. Ghana needs a new business model for development. The old models of just borrowing yourself out of poverty and inefficiencies do not fit. The new model I am advocating should be dynamic and responsive to the challenges we face as a developing nation and get our priorities right.

We need to have a country owned strategy of strengthening our systems for good governance, strategies and plans for fighting corruption, strategies to safeguard public funds, strategies to improve the public administration system, strategies to prosecute corrupt operatives involved in criminal activity and stealing common resources with impunity at the heart of government, strategies to rectify the weaknesses in the taxation systems, strategies to renegotiate and maximize income from companies exploiting our natural resources without paying their fair share of taxation to national or local authorities.

We need openness, transparency in contracts procurement and management, if we are to safeguard public finances and prevent the wanton dissipation of public funds, and huge leakages from the national treasury by corrupt Government operatives.

To achieve this urgent action is required to make the RIGHT TO INFORMATION LAW a reality. The lack of timely financial and expenditure reporting, and the lack of budgetary discipline in government and its institutions, should be dealt with as a matter of urgency.

I think Ghana’s 1992 constitution is seriously flawed in many respects, but Ghana’s Parliament can still do better to rein in the government’s appetite for borrowing and spending.

Interestingly articles 174 to 182 of the 1992 Constitution deals with public revenues. It gives clear rules and regulations on the use of public funds, but it is silent on limits to which the state could spend. This must change and Parliament must decide on the limits of borrowing that should be made by government.

Alternatively Parliament could demand that before any Ghana government loan is brought to parliament, debated and approved, the Government must provide evidence of counterpart funding it has generated itself internally, through efficient taxation or savings.

That way our leaders would be forced to work for their monies, rather than the status quo of running corrupt inefficient systems, with the only main policy actions for socio economic development, being unlimited borrowing of monies for everything , even for the most mundane challenges. That is truly a NO BRAINER!

Ghana is IN debt distress and it’s the national currency the Ghana Cedi which has been badly impacted.

We are in a hole and we must stop digging. We can do things differently.