Rising Debt to GDP: Gov’t Urged To Stop the Jubilation 

Ken Ofori-Atta, Minister of Finance

Accra, Ghana, August 6, 2019//- The Institute of Fiscal Studies (IFS) has asked government to be measured in its jubilation over the Debt to GDP Ratio hitting below 60 percent.

The debt-to-GDP is the ratio of a country’s public debt to its gross domestic product (GDP). By comparing what a country owes with what it produces, the debt-to-GDP ratio indicates its ability to pay back its debts.

During the mid-year budget review, Finance Minister Ken Ofori Atta mentioned that Ghana’s debt level is sustainable and positive for growth.

But the IFS disagree, according to Research Fellow, Lesly Dwight Mensah the current figures are based on the Re-Basing of the economy.

“The fall in the debt-to-GDP ratio to below 60 since the rebasing exercise last year has given a sense of security about the debt position.

“But reality is that we should not take any comfort in a lower debt to GDP ratio. We are saying that a better way to assess the debt and its sustainability is to look at debt service expenditure in relation to government revenue.”

He further gave a breakdown of the relationship.

According to Dwight Mensah “between 2013 and the projected figures for 2019, debt service expenditure is increasing from about 27% of total revenue and grants to about 51.2%.

Debt service expenditure includes interest payment and what they call amortization; paying down of the portion of the principal on our foreign debt”

“The combination of the two as a proposition of our total revenue and grant will hit more than 50% in 2019 which will close to double the 2013 ratio.

So in spite of the fall in the debt to GDP ratio on account of the re-basing the burden of debt service spending on the government finances remains high and is actually on course to go up; and we think that is the pointer to the need to limit borrowing; it is more important as an indicator than the debt to GDP sustainability ratio.”

—rejects tax increments; wants Free SHS limited to 3-per family

Furthermore, the institute rejected tax increments announced in mid-year review and supplementary budget.

But the Director of research for the IEA, Dr. John Kwakye argued other innovative measures should have been used to generate more revenue for government instead of overburdening consumers.

He warned the increments could be counterproductive. He also proposed limiting free SHS to three persons per family as a cost saving measure.

“It has to be said that the decision to increase the taxes, we think it is unfortunate, given the additional burden the increases will pose on already overburdened tax payers. Rather than increasing the taxes, we were expecting the minister to introduce new initiatives to raise revenue”, Dr. Kwakye added.

“…In its current form, the free senior high school is a very costly one, the number of students involved that likely to mount with additional future streams will compound the cost.

It is also very costly for government to offer a whole range of free things under the policy including the fees, other academic charges, books, food, accommodation and uniforms. The mounting free SHS cost will put immense burden on the budget to other equally important projects.

“It will be worthwhile to consider options…first a kind of means testing scheme could be introduced to make financially capable parents pay for their wards…second a government-parent cost sharing arrangement could be arranged where government pays for say academic fees, and charges, books and boarding while parents pay for feeding and uniform…third, consideration should be given to the idea of say three students per family.”

Mr. Ofori Atta announced that Ghanaians will have to pay GHp20 more for a litre of petrol and diesel and GHp 8 more for a kg of LPG.

“Mr. Speaker, you may recall that Government in 2017 issued the Energy Sector Levy Act (ESLA) Bond, which has, to date, raised almost GHS 6 billion on the back of ESLA levies to pay for legacy debts from the NDC’s “dumsor days”.

“The bond proceeds were used to liquidate approximately 60% of the energy sector legacy debts. Government proposes to increase the Energy Sector Levies by GHp 20 per litre for petrol and diesel and GHp 8 per kg for LPG, so as to increase the inflows to enable Government issue additional bonds to pay down our energy sector debt obligations.

African Eye Report/Starrfm.gh.com

 

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