Financial Economist and Member of Parliament (MP) for Nhyiaeso constituency in the Ashanti region, Dr. Stephen Amoah, has observed, after carefully going through the 2022 and 2023 budget, that the 2023 State Budget if actualized, has what it takes to ensure the required debt sustainability and stabilization of the economy.
“Carefully going through 2022 and 2023 budgets, one would realize that the expenditure cut needs of the country to address the current economic hardship. The discretionary spending items are strategically reduced to deal with the ritual deficit issues. The budget has what it takes to provide assurance to the relevant creditors which very key in addressing the post COVID recovery needs. The budget tries to broaden the domestic revenue base to generate a lot of revenue,” the MP stated.
The medium-term target of attaining 55% debt to GDP, according to Hon. Dr Amoah, is very laudable coupled with the 18% external debt servicing ratio policy, and that “The government has demonstrated cash and commitment basis. The stabilization strategy as illustrated by the 2023 budget is very convincing if key stakeholders such as the minority and others will offer the needed support.”
The former Chief Executive of Microfinance and Small Loans Centre (MASLOC) in a statement released yesterday entreated all stakeholders to demonstrate their commitment to attaining our main goals as a country.
He further urged Ghanaians to expect, all things being equal, aggressive mobilization of domestic revenue, streamline expenditure, boost to local productive capacity, promote export driven economy, protect the poor and implement structural and public sector reforms among other things, because “No government can succeed without the support and commitment of its citizenry. Collective effort in nation building is very key to every nation’s long-term economic growth and stability.”
Read Dr Stephen Amoah’s statement below:
Ghana’s Debt to GDP not Country Specific
But 2023 Budget Gives Hope
Dr. Stephen Amoah
Financial Economist
The most needed task of every country on the globe at present is to recover her post-COVID and Russian-Ukraine war economy. The fiscal spaces of most countries including Ghana need consolidation as their debts to GDPs have been up scaled to points of great concerns.
‘The debt to GDP of any country to me, is the heart beat of the financial economic health of that country’. As simply stated, it is the ratio between a country’s public debt and its gross domestic product measured technically annually. It gives reliable indication of the ability of the country to pay back its debts.
World Bank reported about 9 years ago that, if debt to GDP ratio exceeds 77% for a long time it will slow economic growth. ‘Every percentage point of debt above this level will cost the country about 0.017% points in economic growth. In fact, for the developing economies it will cost about 0.02%.
Characteristically, Ghana has been experiencing negative effective tax rate system. What I mean here is that funds outlaid averagely to households are always higher than revenue generated domestically excluding loans. It is one of the credible reasons Ghana has generally high deficits leading to ritually high debts. This chronic dysfunctional situation becomes exacerbated whenever there is turbulence situation either systematic or unsystematic. Ghana has experienced debt to GDP over 121%.
The Recent Debt to GDP of Ghana
The current debt to GDP which is over 80% and has given rise to much controversy among key stakeholders should be analyzed in the right perspective. GDP growth and its stability of any country including Ghana is the function of productivity and labor force; labor force (size and skill component very key). I do not think the latter poses any considerable threat to Ghana’s economic goal. The incident of COVID impaired productivity for over twenty months leading to remarkably slow economic growth all over the world. The world statutory bodies predicted -3.3% GDP growth in 2020. Africa grew -2.02% and Ghana grew 0.4% in 2020. Practically, for the first time personally, I can remember Ghanaians were asked to stay home without going to work for quite a long period but were being paid. Even after that, we had about nine months of workers running shift and still being paid fully. Private sector sacked over 40,000 employees leading to reduction in PAYEs and even corporate taxes. We had revenue shortfalls of over Ghc11bn All these uncontrollably tremendously impeded Ghana’s GDP growth.
At the same time government had to perform its statutory expenditures obligations. Besides, there are other essential services that government could not have reneged on its responsibilities of expending on them. These among others include water, electricity, security, education and health. One cardinal factor in developing economy is redistribution or pro-poor policies both in kind and cash. Governments’ projects and programs are majorly executed through domestically generated revenue and/or debt financing. An uncontrollable situation such as what the world has gone through will inevitably induce debt financing and increase countries’ debt. When a government’s compelling expenditure option is debt financing and at the same time experiencing impaired productivity, the country’s debt to GDP will definitely up. It is very astonishing that relevant stakeholders are made to believe that the situation is an exclusive one in Ghana and it is majorly government induced.
There are also long term financial economic fundamental anomalies which have contributed to the high domestic debt. These anomalies generally cut across all governments. For instance, governments’ securities offering higher returns than private ones that are supposed to be rather risky assets. The import driven economy which has been exercised over so many years. These are all areas that need long term policy framework. They are the reason the present government emphasizes on education and industrialization.
2023 Budget
The 2023 State Budget if actualized has what it takes to ensure the required debt sustainability and stabilization of the economy. Carefully going through 2022 and 2023 budgets, one will realize that the expenditure cut needs of the country to address the current economic hardship. The discretionary spending items are strategically reduced to deal with the ritual deficit issues. The budget has what it takes to provide assurance to the relevant creditors which very key in addressing the post COVID recovery needs. The budget tries to broaden the domestic revenue base to generate a lot of revenue. The medium-term target of attaining 55% debt to GDP is very laudable coupled with the 18% external debt servicing ratio policy. The government has demonstrated cash and commitment basis. The stabilization strategy as illustrated by the 2023 budget is very convincing if key stakeholders such as the minority and others will offer the needed support.
The assurance of the IMF to work closely with government consolidates the recovery and stabilization agenda of the budget. I am accordingly entreating all stakeholders to demonstrate their commitment to attaining our main goals as a country. Ghanaians should expect all things being equal, aggressive mobilization of domestic revenue, streamline expenditures, boost local productive capacity, promote export driven economy, protect the poor and implement structural and public sector reforms among other things.
No government can succeed without the support and commitment of its citizenry. Collective effort in nation building is very key to every nation’s long-term economic growth and stability.
