Public Debt Claims 49.4% Of Ghana’s GDP
By: Masahudu Ankiilu Kunateh
Ghana’s total public debt, at the end of December 2012, stood at $18,832.77 million, equivalent to 49.4% of Gross Domestic Product (GDP), up from $15,350.08 million, representing 40.8% at the end of 2011.
This means that Ghana loses 49.4% 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 a year or quarterly.
Ghana, with an estimated population of 25 million people, when divided by the public debt, every Ghanaian would owe $753.3 to the country’s creditors, both internally and externally, as of December, 2012.
Ghana’s Minister of Finance, Seth Terkper, disclosed in his GH¢30.5 billion (US$16billion) Budget for 2013.
In terms of debt type, domestic debt grew by 30 percent (between 2011 and 2012) to constitute 53 percent of the total public debt, compared to 47 percent for external debt, he added.
Mr. Terkper explained: “A combination of factors, including the reduction in the availability of concessional funds as a result of the Euro financial crises, contributed to the increase in non-concessional borrowing to finance infrastructure projects.”
He continued that the increased public debt was also due to the issuance of longer-dated domestic debt instruments (3-year and 5-year bonds).
The rise in total debt has sent shivers down the spines of sections of Ghanaians, because of the fear of its medium to long term sustainability implications.
Mr. Terkper assured Ghanaians that the debts were issued for priority and self-financing projects, including the Eastern the Corridor Roads, Gas Processing Plant, Wa and other hospital projects, rehabilitation of the Western railway line, retooling of the Ghana Police Service, and the provision of essential equipment to the military, saying: “They will, therefore, not pose a threat to the debt sustainability of the country.”
Also, the government, in 2012, raised loans to the tune of about US$2,286.24 million, (of which US$1,089.75 million was concessional and US$1,196.49million non-concessional), to implement various infrastructural projects in an effort to help bridge the gap in development, consistent with our middle income status.
The Ministry of Finance, in conjunction with the World Bank, recently undertook a debt simulation exercise for the end of year 2012, to ascertain the country’s debt sustainability levels.
This assessment revealed that Ghana remains within the category of moderate risk of debt distress – the same rating the joint World Bank/ International Monetary Fund (IMF) mission assessed in November 2011.
Mr. Terkper was quick to add: “The assessment, though, showed that public external debt burden indicators remained below their respective thresholds; it also showed an increasing trend in the liquidity ratios, especially the debt service-to-revenue ratio, which is projected to average about 9.1 percent of GDP, between 2013-2018, from the current 7.5 percent.”
Despite the doubts, civil society organisations, including IMANI Ghana, expressed doubts over accessing the $3 billion Chinese Development Bank (CDB), Mr. Terkper he told Members of Parliament (MPs) that assessment of projects under the CDB financing arrangement were progressing smoothly.
According to him, works were far advanced on the Western Corridor Gas Infrastructure Project, and application made for the supply and installation of ICT enhanced surveillance euipment, under the Integrated National Security Communication Project.
Furthermore, the Minister revealed that the Ministry of Finance was working diligently with the beneficiary Ministries, Departments, and Agencies (MDAs) to finalise relevant project preparation documents, to ensure the timely completion of projects.
The completion of these projects will significantly reduce the infrastructural deficit in critical areas of the economy, Mr. Terkper stated.
The government, in the 2012 Budget, mentioned the hedge programme put in place to contain the phenomenon of crude oil price escalation, with the view to achieving price stability and guarantee the availability of petroleum products on the Ghanaian market at all times.
The hedging programme has largely been successful. The key benefit has been a stabilisation of the prices of finished petroleum products, which were partially protected by the hedge when crude oil prices soared from $78 per barrel in September 2010 to $128 per barrel in April 2011, and from the lowest average price of $95.77/pbl in June 2012, to the highest price of $124.50 / pbl in March, 2013.
The impact of the latest (and still on-going) oil crises on the economy of Ghana would have been very consequential, had the hedging policy not been put in place.
In view of the potential benefits, the government intends to strengthen the programme further in 2013.
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