In the wake of alarm at the rate of government borrowing, economist Dr Eric Osei–Asibey has explained that although borrowing is essential for economic development, how the loan is negotiated has dire consequences for any government.
The lecturer with the University of Ghana told Joy FM’s Super Morning Show Monday that some countries are borrowing much more than Ghana but because of fiscal discipline and macroeconomic stability their debts were more sustainable.
“If you compare [Ghana’s debt to GDP ratio] to other countries, it is not too high. In US it is about 105%, in Japan is about 235%…in many other European countries it is above 80%”
Prime Minister Shinzo Abe has borrowed more than Ghana’s Mahama
But he says a look into the debt structure and the affordability of these debts in developed countries shows that Ghanaians have cause to be concerned.
He said despite Japan’s frightening debt level, it has an interest rate of 1.3% while interest rate in America is 3.5%. Ghana however has an interest rate hovering around 25%, he stated.
“These countries that we say have borrowed more, if you compare in terms of cost, affordability, debt servicing, the interest that we pay on our debt, we cannot compare ourselves to these countries.”
An IEA assessment of the economy has reignited the debate over Ghana’s debt sustainability.
Mahama overseeing record debt levels in Ghana
Latest release from the Bank of Ghana shows that government contracted 10 billion cedis in last four months of 2014 to bring Ghana’s public debt to Ghâ‚µ 76bn as of December 2014.
This amount represents about 67% of the country’s total GDP, which is beyond the 60% mark, a level thought to be dangerous and unsustainable despite government assurances that it has the discipline to control the debt.
Throwing some light on the economic debate, the university don explained that borrowing was the way to go because Ghana’s poor infrastructure demands more resources.
“We have huge financing gap for infrastructure. We need to fix our roads, we need to improve water, we need to have adequate power supply all of that require money and therefore we cannot say that government should not borrow”, he maintained.
He was, however, quick to add that the impact of government’s excessive borrowing, especially domestically, is that the private sector ability to access money is seriously curtailed.
This makes it expensive for businesses to go for loans from banks and, therefore, increases the cost of doing business in Ghana.
“If the private sector is to borrow at around 30% to 35% interest rate just because government keeps borrowing domestically, then of course it is a cause for concern”, the lecturer said.
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Story by Ghana|Myjoyonline|Edwin Appiah|[email protected]
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