On both the respectable traditional media and in the court of public opinion which is by the way just as powerful if not more powerful, one is likely to hear debt, debt sustainability, debt to GDP and debt accumulation. We’ll quickly dive into what these mean.
A situation where a deficit unit borrows resources that would be paid with interest on a future date from a surplus unit. Debt, like every other resource is a tool that is intended to be used to finance or achieve stated development goals pre-determined by the borrower. That must be simple right? Not precisely!!! The dinamics of debts are many and varied. What type of debt? What maturity period? And what rate of interest are some of the dinamics. The bottom line that managers and policy makers of economies must at all times strike a balance between the marginal cost of a debt and the marginal benefit of same.
The IMF describes debt as sustainable if the government is able to meet all its current and future payment obligations without exceptional financial assistance or going into default. An economy must posses the capacity to service it’s debt as well as repay the principal amount as and when they fall due.
Debt to GDP
In financial analysis, ratios are used to acertain the strength and sustainability of some key indicators. In the circumstance, debt to GDP measures the amount of debt a country accumulates per it’s total output in a particular year. While it is not the best of indicators, it remains the most convenient indicator by far, for many citizens.
Debts, as far as countries are concerned build-up over several periods. While some debts are retired, others are contracted and it becomes an endless chain.
What is Ghana's Debt situation?
Ghana’s debt stock stands at USD 55.8bn and while this figure may sound little I can assure you that it’s not.
If Ghana’s debt stock was used measure output of Nations, Ghana’s USD 55.8bn debt would be more than the GDPs of Niger, the Gambia, Siera leon, Chad, Benin and Togo combined. That must be huge right?
If Ghana’s debt was used to purchase land Cruiser V8, we’ll have enough to line them up from Accra to Tamale and from Tamale to Accra two times, huge right?
If Ghana’s debt stock was used to construct hospitals equivalent to Accra ridge hospital, we would have had 216 of them. At least 13 hospitals in each of the 16 regions of Ghana.
Ghana’s interest payments on debts had increased and continues to increase to levels that signal potential failure to service debts in the near future.
Is Ghana’s current debt unsustainable?
The answer is an emphatic NO
- Ghana has on no occasion failed to service it’s debt.
- Ghana has not defaulted in paying any debt
- It is unclear if Ghana borrows to settle maturing debts.
The minority leader, Haruna Iddrisu, speaking on Joy FM’s super morning show has describes Ghana’s economy to be on a path to unsustainable debt. This only goes to confirm that we’re not there yet but we’re also not far from it.
Conclusion
As though Ghana’s debt is not unsustainable, government should be seen to take steps towards safeguarding the nation from a potential unsustainable debt situation.
Many, including Ato forson of the opposition NDC and Joe Jackson of Dalex Finance have called on government to cut expenditure and find equitable means of taxing the pupulace to raise enough revenue to reduce the current debt levels and to answer the cries of the youth for government to create Jobs.
Repaying the public debt with expediency is very crucial at this point because it would help restore investor confidence in the Ghanaian economy and by extension reduce our cost of borrowing going forward.
--Alem--
Our next opinion
Post a Comment