The Institute of Economic Affairs (IEA) believes the country is on the brink of collapse, as it’s saddled with unsustainably heavy debt.
It therefore served notice that if care was not taken, Ghana would sink to where it was some 30 years ago under the Provisional National Defence Council (PNDC) administration when debt sustainability was a serious problem.
In a statement issued to DAILY GUIDE , the economic think-tank decried the level of financial indiscipline by government, leading to unbridled borrowing, while stressing the need for policy rules on annual fiscal deficits.
The statement, which was signed by chairman of the IEA, Dr Charles Mensa, made a comparison of how the Ghanaian economy had been performing over the years (from the early 80s to date), noting how it was choking under a huge burden of national debt resulting from fiscal indiscipline.
‘As has been the story of Ghana, between 2009 and 2014, not long after the IMF’s exit, the national debt almost doubled and jumped to 65%. Commercial Bank interest rates also rose to an alarming rate of between 30% and 40%. The international rating agencies of the world lowered our credit rating to “B”, equivalent to Junk Bond status.
‘Should we continue on this path, our national debt will grow to about 70% of GDP by 2016 and close to 100% by 2020, returning our nation to where it was some 30 years ago, at the brink of financial collapse,’ the IEA warned.
The warning is coming on the heels of similar warnings by the New Patriotic Party (NPP) vice presidential candidate, Dr Mahamudu Bawumia and Dalex Financial Services Chief Executive, Ken Thompson, that Ghana is heading for the broke because of excessive borrowing instigated by fiscal indiscipline by the government.
The IEA wondered how handlers of the economy are not able to bring economic indices, including interest rate and inflation, under proper control in spite of all the interventions from the Structural Adjustment Programme (SAP) and the Highly Indebted Poor Countries Initiative (HIPC) extended to Ghana by the International Monetary Fund (IMF).
Going forward, it said Ghanaians should be occupied with ‘how to inculcate the culture of financial discipline among our elected leaders, knowing very well that their inability to manage the country’s fiscal affairs has been the bane of our problems and the cause of our poverty and underdevelopment.’
The IEA has therefore made proposals for what it called ‘the adoption of fiscal policy rules with ceilings on annual fiscal deficits.’
To be effective, it said, ‘This rule should be incorporated in a legislation to govern the entire public sector financial management system with well-defined sanctions for violating the law.
‘By so doing, our decision makers or political leaders will be guided by a clearly defined legal framework.’
According to them, several countries including Chile, Brazil, the United States of America and countries of the European Union have adopted such frameworks to protect their economies and citizens from short-term policies for political expediency.
With this proposal for the adoption of fiscal policy rules with ceilings on annual fiscal deficits, the IEA is sure Ghana would be able to keep the issues of inflation, GDP and excessive borrowing under proper control.
Last week the Chief Executive of Dalex Finance, Ken Thompson, warned that Ghana’s economy was destined for total collapse this year.
‘We are heading for a crash…we have got to strive for operational efficiency because we are extremely wasteful in this country,’ he warned.
According to him, government had completely failed to put in place an effective mechanism to control public spending and check fiscal indiscipline.
‘Our behaviour has not changed. We have been living above our means for years,’ Mr Thopmson observed.
By Charles Takyi-Boadu
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