Report: Economist feels sorry for next Finance minister; he's in very tight corner

Ghanaians have been urged to temper their expectations of the new New Patriotic Party (NPP) government because economic data puts managers of the economy in a very tight corner.

The grimmest data is the size of the country’s debt, Professor of Economics Godfred A. Bokpin said while urging tempered expectations.

Ghana has a public debt of GHC120 billion as at November 2016 which is 73 percent of the nation’s GDP – the level described as high debt distressed country.



The summary of Macroeconomic and Financial Data released by the Bank of Ghana, for instance, showed that in just one month – from September 2016 to November 2016, the public debt went up by GHC8 billion. 

Former Finance minister Seth Terkper

Ghana’s 73% Debt to GDP ratio as huge as it may be dwarfs before America’s debt to GDP ratio. According to the professor, the US has never been below 90% debt to GDP

“You will not remember them [US] for their debts, so why big deal in Ghana?

It is about how the debt was used, Prof. Bokpin offered adding, “America used their debts to increase the asset base of their economy – it called productive investments.”

“That is not the case for Ghana,” he said noting Ghana has over the years made some “inefficient public investments” citing over-valued projects are some of them.

While he did not state examples of such projects, the economics professor said the evidence of a value-for-money investment is seen in economic growth.

If the economy is not growing, the investments were not effective, he analysed.

Ghana’s economy grew by 4.3 percent in 2016. A year before, it grew by 3.6 percent.

So to America, debt to GDP is just a number. To Ghana, it’s an albatross, he suggested.

According to him, it didn’t use to be that way as by 2006, two debt relief lifelines – HIPC and multi-lateral debt reliefs – gifts Ghana an opportunity to lower the debt to GDP ratio which was – less than 40 percent.

“We have climbed rather rapidly with very little to justify for the increment in our debt stock,” the Prof said bemoaning wasted opportunities. “Now several economic indicators don’t look “favourable”, he said.

Professor of Economics Godfred A. Bokpin

Before he looked at the way forward, the professor signalled he was not done with the way backward.

Some of Ghana’s GHC120 billion in loans will be maturing in the medium term – that is not more than five years. It means soon, Ghana could be pushing out huge outflow of cash to retire Eurobonds.

Ghana issued its fifth Eurobond on September 9, for $750 million with a coupon rate of 9.25 percent.

“If we don’t put in place the right framework today, a time will come it will create problems for us,” the Professor warned.

After he was done with loans, Professor Godfred Bokpin moved on to revenues.

He explained that of all the tax revenues collected in a year, 45 percent is spent on wages while 38 percent is spent on debt servicing.

“We are not even talking about retiring the principal”, he expressed worry.

It means as far as tax revenue is concerned, the Finance Minister has a paltry 17 percent to fulfill a slew of ambitious promises by the NPP during the 2016 campaign.

The 2016 NPP Presidential candidate Akufo-Addo

The NPP promised a factory in each of the 216 districts of the country, promised $1m for each of the 275 constituencies as well as an aggressive irrigation plan christened ‘one village, one dam’.

The governing party also wants to restore in full, Teacher and Nursing Trainee Allowances which the National Democratic Congress (NDC) removed in 2012 and since then, saved a reported GHC282 million.

The NPP also promised to reduce corporate tax rate from 25 percent to 20 percent; Capital gains tax is expected to also be reduced to 10 percent, along with reductions and abolishing some 10 more taxes.

The effect of spending 83 percent of tax revenue on two items is that “you realise that you are actually crowding out priority spending” – another way of saying the NPP’ promises could keep longer on the shelf, the Professor noted.

“I don’t envy the Finance Minister because he is a Finance Minister without flexibility,” he said.

With the economy to live on 17 percent tax revenues, there are insufficient funds internally to make critical capital investments.

Faced with a lack of funds to implement its agenda, Akufo-Addo’s senior minister-designate Yaw Osafo Marfo has said the NPP government would be renegotiating some agreements with the IMF.

“We’ll certainly borrow…but under certain arrangements…we will borrow to refinance to change your whole debt profile that is what we will be seeking to do,” he said. 

If Ghana chickens out of making investments because it lacks the funds, the country becomes increasingly uncompetitive in the global environment”, the economist said.

“A country that is not investing substantially in capital investments [is] certainly is not preparing for tomorrow,” he said.

Professor Bokpin was not done with the debt. He broke them down into two types; external debt and domestic debts.

In a way, if you rack up domestic debts, you are safe; if you rack up external debts, there are two things involved, he explained.

You have to pay back in dollars and you have to export more to get dollars to pay this debt.

“If you don’t align our foreign earnings with your foreign debt then you are exposed,” he said. 

Ghana has more external debts than domestic loans. As at march 2016, domestic debt amounted to GHC39.4 billion while external debt was GHC57.8 billion.

“If we don’t do well in terms of export (e.g cocoa, gold) then you realise that the pressure that will come on the cedi will further increase your debt stock.

“Once the cedi depreciates it has further problems for our economy”. The NPP government he said ” might not be able to meet all their promises,” Prof. Bokpin said.

Already, Senior minister-designate Yaw Osafo Maafo has said paying the highly controversial teacher and nursing training allowance is not a big deal.

He told the Appointments Committee of Parliament during his vetting “debt-servicing is 7 percent of GDP, while the allowance is 0.1 percent of GDP.

“… so you can more than pay those allowances if you manage resources well.” he had said.

In a parting advice to the NPP, the economist with the University of Ghana cautioned the government to be careful not to put politics above sound policies.

“I think that we have to be moderate with our expectations,” he advised.

“Don’t take short-term measures just to please the electorate and sacrifice long-term growth potential of the economy”.

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