Prof. Newman Kwadwo Kusi, the Executive Director, Institute for Fiscal Studies, Ghana, says Ghana’s debt-gross domestic product (GDP) ratio has reached a level considered to be above the sustainability threshold posing serious headwinds to macroeconomic stability growth.
Speaking at a public forum organised by Economy of Ghana Network at the Institute of Statistical, Social and Economic Research (ISSER) Legon, Prof. Kusi added that this trend was amplified by the resulting balance of payments pressures and currency depreciation.
The debt surge, according to Prof. Kusi, was effectively stemmed when the country’s access to market financing was closed off due to the global financial crisis in 2008-2009. He explained that huge increases in the issuance of domestic currency debt, alongside increased borrowing from foreign sources after the global financial crisis have complicated the landscape for the country’s debt sustainability and crisis prevention.
Prof. Kusi pointed out that the provisional public debt stock as at September 2015 was GH¢92.2 billion which was equivalent to 69.1% GDP with the banking sector remaining the major holder of domestic debt. However the sector’s share in the total domestic debt stock dropped from 67.2% in 2009 to 49.9% in June 2015. Despite this, the share of the Bank of Ghana in the total domestic debt increased steadily from 17.2% in 2010 to 24.5% in June 2015.
Towards finding a solution to the high level of public debt, Prof. Kusi called for a well-grounded fiscal framework to anchor fiscal policy and guide it toward the achievement of the credible policies to restore debt sustainability, macroeconomic stability and a return to high growth and job creation, otherwise, the country will very soon be on a debt meltdown like Greece.
According to Prof. Kusi, the International Monetary Fund (IMF) has indicated that given the high level of public debt and financing constraints, fiscal adjustment will need to be strengthened in 2016. The real challenge though is whether the government will be able to demonstrate fiscal prudence in the run-up to the 2016 elections.