The Ministry of Finance and Economic Planning (MoFEP) has disputed the claim by the Institute of Economic Affairs (IEA), a policy, research and analysis think tank, that Ghana is on the brink of economic collapse as it happened in 1985.
According to the IEA, the country does not have fiscal rules or laws for the management of the economy.
The sector Minister Seth Terkper, who issued a statement at the weekend, said the IEA made some sweeping assertions in its analysis of the economy.
He said ‘the projection of the debt/GDP ratio does not take into account the potential GDP growth, there was complete disregard of the fiscal stabilizers that have become active over the last few years.’
According to the minister, the government had started to correct unsustainability of traditional debt management with specific strategies that were approved by cabinet and parliament in the 2013 through 2015 budgets.’
He mentioned the use of grants and concessional financing for commercial and quasi-commercial projects.
Mr Terpker further said the establishment of Ghana Infrastructure Investment Fund (GIIF) and Sinking Fund Account, less reliance on guarantees, as well as a moratorium on new loans and contracts were also being pursued vigorously.
The Minister said that the IEA’s trajectory of debt ‘ignored the medium-term prospects for the country, hence did not make room for significant GDP growth.
‘Evidence shows clearly that the rate of growth and base of Ghana’s GDP went up significantly between 2010 and 2012, mainly due to the rebasing of the GDP, fast growth of service sector, increased construction activity, rebound of cocoa production, and exports of crude oil (for the first time),’ he pointed out.
He said the ‘2015 Budget notes that the period from 2015 through to 2017/18 will experience further increase in crude oil and notably the advent of gas production, we therefore disagree with the IEA’s dire projection of the debt/GDP ratio that does not take into account the potential rapid GDP and the new debt management policy.
‘All nations borrow for major capital or infrastructure development; therefore, the current focus of government policy is on smart borrowing to sustain growth and development without unduly increasing pure public debt,’ he said.
He said the traditional practice of putting the total cost of huge infrastructure projects or costs on the budget has failed woefully,’ emphasizing that ‘prior to 2009, a significant value of infrastructure projects was put on the national budget.’
He added that ‘part of the current pressure emanated from the bonds that were issued between 2010 and 2012 to finance roads that we now call the Gang of Six.
‘It is erroneous to assert that Ghana does not have fiscal rules or laws by simply pointing to gaps and ignoring the overall status quo,’ the Minister said, adding that ‘Ghana has a comprehensive statutory framework to support sound debt management including the 1992 Constitution, Financial Administration Act (Act 654) and the Financial Administration Regulation (LI 1802).’
The minister said ‘the Bank of Ghana law includes limits on borrowing from the central bank. Furthermore, ECOWAS single convergence criteria to which Ghana subscribes contains several fiscal rules.’
By William Yaw Owusu
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