Accra, Ghana//-Figures released by the Bank of Ghana (BoG) revealed that the government has, within four months added GH¢13 billion loan to the country’s debt stock.
This brings country’s total debt (both domestic and foreign) to GH¢304.6 billion in March 2021, the latest BoG Summary of Economic and Financial Data, added.
The amount (GH¢304.6 billion) represents 70.2% of Gross Domestic Product (GDP) as compared to 76.1% registered in December, 2020.
This means that Ghana loses 70.2% of its GDP to the ever-growing public debt. GDP is defined as the total market value of all final goods and services produced in a country in a given period, usually yearly or quarterly.
The drop in debt to GDP ratio could be due to the expansion in the size of the Ghanaian economy in spite the ravaging COVID-19 pandemic.
The country raised $3billion Eurobond in March this year, pushing the public debt upwards.
Between December, 2020 and March, 2021, GH¢13billion was added to the country’s debt which stood at ¢291.6 billion at the end of 2020.
The data also revealed that the domestic debt component rose to GH¢163.6 billion at the end of the first quarter of 2021 as against GH¢149.8 billion in December last year. This is equal to 37.3% of GDP.
The external debt component on the hand stood at GH¢141 billion ($24.6 billion) in March 2021, as against ¢141.8 ($24.6 billion), depicting 37.7% of GDP.
Additionally, the financial sector debt went down by GH¢100 million to ¢15.2 billion. This is equivalent to 3.5% of GDP. The debt might go down if levies collected to settle the financial sector debt is used for that purpose.
Every Ghanaian owes over GH¢10,153
Ghana, with an estimated population of 30 million people, which when divided by the current public debt of GH¢304.6 billion, every Ghanaian would owe over GH¢10,153 to the country’s creditors, both internally and externally, as of March 2021.
Public debt accrues over time, when the government spends more money than it collects in taxation, and as a government engages in more deficit spending, the amount of public debt increases. That is the exact sad story of Ghana, according to economists.
Widening Debt-Trap
Economists maintain: “As it stands now, the government cannot immediately get out of the debt-trap, because maturing obligations cannot be paid out of its relatively low revenue base.
Restructuring of the debt from short to long term brought some respite, but can only be sustainable if the short term relief is combined with strong fiscal consolidation.
While swapping old debts with new ones, it is important that any surplus of the new debt, over and above the old debt, goes into projects that can pay for themselves.
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.
An analysis of the country’s revenue base as a percentage of GDP, and the interest payment as a percentage of revenue, shows that the current level of public debt-to-GDP ratio may not be sustainable.
Given the country’s relatively low levels of revenues, vis-à-vis high and rising expenditure, the high debt-to-GDP ratio may make it more difficult for Ghana, in the medium term, to pay its debts.
Low Revenue to GDP Ratio
The total tax revenue to GDP ratio for most developed countries is about 40%, but the total revenue and grants for Ghana is projected at GH¢56,956 million.
This represents 13% of GDP for 2021 based on the 2021 fiscal framework, and represents a nominal growth of 9.7 percent over the revised target for 2020, according to the country’s 2021 budget.
Clearly, the revenue base for Ghana is too small to warrant the 70.2% % debt-to-GDP ratio. The current debt level may be sustainable, only if Ghana can triple its revenue base at the current GDP level to achieve a revenue-to-GDP ratio of not less than 25.0%, but this cannot be achieved in the short term.
So the government needs to pull the brakes on the expenditure side by prioritising its projects, and making sure loanable funds can be matched by revenue generating activities.
The Finance Minister, Ken Ofori-Atta has started looking at this option, but he should have done this much earlier. As it stands now, it is going to be difficult for Ghana to get out of the debt trap.
Not reaching out
The Chief Executive of Ghana Investments Promotion Centre (GIPC), Yofi Grant at the sidelines of the Centre’s CEO’s Breakfast Meeting held in Accra, said that the fact that Ghana’s tax to GDP is only 12.5% shows that “we are not reaching the broader constituents of taxpayers”.
A tax-to-GDP ratio is a gauge of a nation’s tax revenue relative to the size of its economy as measured by gross domestic product (GDP).
The ratio provides a useful look at a country’s tax revenue because it reveals potential taxation relative to the economy. It also enables a view of the overall direction of a nation’s tax policy as well as international comparisons, according to Investopedia.
“We hear a lot of people saying that we have been overtaxed. But if you have a tax rate of 12.5% to GDP while our peers are at over 20% to GDP, then you know that you are not collecting enough taxes”.
For instance, people don’t realize how important it is to pay tax. You have someone who employs a driver, a cook, a garden boy and others and pays them with cash. And they are not taxed. So, they are outside the tax net.
There are a lot of people too whose businesses are informal and they are very mobile and so they are outside the tax net.
So the registration of everybody biometrically or digitally will mean that the revenue authority will know the people and how to get them to contribute to the development of their country by making sure that they pay the appropriate taxes.
“As we ask government to be responsible in spending, we also as citizens need to pay our taxes. In some countries, the law is harsh on people who don’t pay taxes.
Because taxes are the only way that government makes or gets money for development projects and the running of government machinery.
The rest of it is from the private sector. Private sector generates the incomes that government taxes and those taxes are used by the government for development purposes, among others”.
Impact of COVID
Daniel Nuor, the Head of Tax Policy Unit of the Ministry of Finance, noted that the impact of COVID-19 on the economy has exposed the structural challenges that economy faces.
The COVID-19 according to him has further highlighted the need for government to look inward and evaluate the country’s domestic revenue mobilization efforts if “we want to sustain the progress we made pre-COVID-19”.
By Masahudu Ankiilu Kunateh, African Eye Report
