The Governor of Bank of Ghana – Paa Kwesi Amissah Arthur
Excluding the GH¢3 billion Chinese loan agreement recently approved by Parliament, Ghana’s public debt rose sharply to GH¢21.6 billion in July 2011, representing about 40.5 percent of Gross Domestic Product (GDP).
The alarming situation, according to some economists, market watchers and civil society, could harm the nation in the long-term since it might not have the capacity to service or pay the debt.
Despite the huge monies owed by Greece, Portugal, Italy and Spain that threaten these economies, the government has expressed its intention to borrow more money.
According to the latest Monetary Policy Committee (MPC) report released yesterday, the external debt stock shot up to $7.1 billion at the end of July 2011 from $6.333 billion or GH¢9.500 billion (17.88 percent of GDP) recorded in March 2011.
However, domestic debt at the end of July 2011 was GH¢10.9 billion as against GH¢9.526 billion (17.84 percent of GDP) recorded in March 2011.
The substantial increase in the domestic debt was mainly due to the issuance of bonds by the government to settle arrears, especially those of contractors.
Government expenditure also shot up missing its fiscal deficit target for the first six months. This was due to the fact that government’s wage bill for the first half of the year almost doubled.
Overall fiscal operations from January to July 2011 therefore resulted in a narrow budget deficit of GH¢1.12 billion compared to a target deficit of GH¢849.8 million. This was financed by a net domestic borrowing of GH¢1.04 billion and net foreign inflows of GH¢84.3 million.
The MPC, in its June 2011 report on fiscal developments in the economy, revealed that the wage bill, coupled with other factors, threaten the fiscal consolidation process.
Paa Kwesi Amissah Arthur, Governor of the Bank of Ghana (BoG), said provisional data on the execution of the budget showed that the total revenue target for the first half of the year was achieved. However, the pace of growth in expenditures was higher than programmed.
On the external front, total export of crude oil from January to July 2011 was 12.6 million barrels valued at $1.4 billion, while import of oil products increased by $180.9 million to $805.8 million. In addition there were imports of gas from through the West African Gas Pipeline of $94.5 million.
Total merchandise exports went up to $7.5 billion in July 2011, representing a growth of 62.3 percent over the same period last year. Total merchandise imports however amounted to $8.6 billion, representing a growth of 45.4 percent in the first half of the year.
…Interest Rates Maintained
Meanwhile, interest rates will not change after the Bank of Ghana (BoG) maintained the Policy Rate at 12.5 percent for the next quarter of the year.
This means base lending rates will remain virtually the same from now till November.
Upside risks to inflation in the form of increase in utility tariffs, wage pressures among others that may result in the overheating of the economy were the factors considered.
With regard to interest rate structure, interest rates on the money market continued to ease over the seven-month period with a shift in investor preference towards long dated instruments.
The 91-day Treasury bill rate declined from 12.28 percent to 10.39 percent while the 182-day T bill rate also declined from 12.68 percent to 11.20 percent during the period.
Average lending rates within the period was however 26.95 percent despite the banks borrowing at 12.5 percent from the Central Bank.
By Charles Nixon Yeboah