Is Ghana’s Debt Stock Sustainable?

By Kwesi Atta Sakyi 25th November 2013

Ghana has a population of 23 million people, and our total debt stock, both internal and external, stands at 23.4 billion dollars. This means that every Ghanaian owes about 1000 dollars to our creditors. Since it is said that we have reached middle income status with per capita income of about 1000 dollars per annum, it will mean to pay off our national debt, every Ghanaian has to starve for one year by foregoing his per capita income. Sustainability means the ability to carry on an activity for a long time. It also means the activity should be self-financing, feasible, suitable, acceptable and of benefit to all stakeholders. In the light of this definition, is our national debt stock sustainable?

Who are the beneficiaries of the loans? How will future generations benefit from such loans? What was the collateral for the loans? What will be the implications for defaulting on our loans when they mature or fall due? Did we conduct investment appraisal and due diligence before signing on the dotted lines for the loans? What are the returns on the projects invested in? Did we conduct cost benefit analysis and environmental impact assessment? Did we evaluate the hidden costs as well as the opportunity cost? In 2008, Ghana’s total debt stock was about 8 billion dollars. How come the debt stock some five years later has snowballed by trebling and tripling to 23.4 billion dollars, with more than 50 % of it being internal borrowing? Our debt stock represents 53% of GDP, which is quite worrisome and scary.

It is understood that a greater part of the loans from China, are meant for projects in housing estates, energy sector power generation enhancement, roads, construction of new airports, seaports, universities, hospitals, secondary schools and irrigation projects. Every effort should be made to slow down our humongous appetite for borrowing, for, there is the old saying,’ Neither a borrower nor a lender be….’ Ghana is being mortgaged with loans, and we run the risk of being downgraded by the financial institutions such as Standard and Poor, Fitch, among others.

A heavily indebted country loses its sovereignty and independence in international fora, as it becomes a puppet at the apron strings of the creditor nations. Heavy government borrowing from the banks leads to the crowding out effect on local entrepreneurs and investors, as they may not be able to compete with government for the loanable funds in the banks, which because of high demand from government, may attract high interest rate charges.

Heavy government borrowing for recurrent expenditure such as paying huge salaries of government workers may lead to inflation and high cost of living. However, prudent undertaking of government projects will increase aggregate demand, triggering the multiplier effect and growth outwards of the Production Possibility Frontier (PPF) or GDP. Government expenditure has however been found to have a lot of leakages due to bribery, corruption, bureaucracy, and lack of transparency.

Unlike investment in the private sector where we have high levels of controls, transparency and accountability, there is tardiness in executing government projects because contracts may be inflated or awarded to people with little technical competence, and most government contracts may go to politically-affiliated bidders who support the ruling government. Supervision, oversight and monitoring of government projects may be weak or non-existent.

Nobody knows when the Accra –Kumasi road will be completed. Nobody knows whether the loan for the project has been exhausted while the project is mid-stream. If government contracts are awarded fraudulently, then they defeat the whole purpose of contracting loans for public projects, and they put a strain on the taxpayer.

The government borrows for purposes of delivering on their election promises in the form of executing projects in all the 10 regions of the country. However, too much borrowing creates a generational debt burden for the future generation, which action may be unethical. This is why robust checks and balances should be put in place to check the huge debt appetite of the government. Parliament is the body to do this oversight of scrutinising all the proposed loans.

Our parliament is doing a commendable job in this wise. An alternative to borrowing is to enter into BOT (build, operate, transfer) with entrepreneurs in the private sector to build some of the infrastructure from their own resources and then operate them until they recoup their capital and interest.

Projects like schools, stadia, water pumping stations, power generating centres, markets, public toilets, among others can be financed that way. Also, the government should encourage more public-private-partnerships (PPP), thus freeing some of government revenue for priority projects and programmes, such as maintenance of law and order, stocking the hospitals with modern equipment and essential drugs, purchasing ambulances, training teachers, among others.

We should be circumspect in our contraction of loans so that the nation can save and have surpluses. Having a healthy balance of payment surplus can strengthen the cedi against other currencies. Having a cash budget as well as a budget surplus brings about fiscal discipline. Engaging in high budget deficits for political expediency is untenable and irresponsible. We should not deceive ourselves that we have oil money so we should be extravagant and engage in a spending spree by borrowing carelessly.

We might contract the Dutch disease whereby wallowing in oil wealth will make us build castles in the air, and neglect sectors such as agriculture, tourism and local industries. Over-borrowing might stifle growth in the private sector. The loans contracted from outside should be prudently utilised to create jobs and help raise the standard of living of the majority poor, and provide interventions for meeting the 8 Millennium Development Goals (MDGs).

We should be careful not to use loans for buying expensive cars and furnishings for MPs, ministers, and government appointees. We should make sure all the projects which have been announced from the rooftops by the government are dutifully carried out. These include the construction of new secondary schools, housing estates, hospitals, training colleges, roads, universities, power stations, airports, harbours, among others. Undertaking such projects will increase our stock of social and public assets.

In conclusion, we are calling on all Ghanaians who win government contracts to be committed and work hard at them to assist in delivering quality service to the people. That way, we shall have value for money, efficiency, effectiveness and economy.

Contact: kwesiattasakyi449@gmail.com