High interest expenditure threatens fiscal policies – Economist

Economist, Dr. Eric Osei Assibey has warned of some distortions to Ghana’s growth targets if government fails to align its fiscal consolidation measures with the productive sector of the economy.

According to him, the continuous allocation of a significant proportion of government’s revenue to interest payments, have rather affected the private sector’s ability to access credit.

Ghana spent about 9.5 billion dollars; equivalent to a quarter of the country’s total revenue for 2015, on interest payments.

This however measures almost hundred percent high; compared to the capital expenditure which was about 12 percent of total expenditure for 2015.

Dr. Assibey believes the development if unchecked, will hinder government’s ability to achieve a holistic fiscal consolidation.

“We are paying more than double of the amount that is allocated to capital expenditure as interest servicing not to talk about capital expenditure. Whereas interest servicing constitutes about 25% of total expenditure, capital expenditure is just about 12% of one that matters most for growth,”

“So the issue is fiscal consolidation must be able to translate into the fact that the interest alone of borrowing reduces and so over time the interest cost must reduce,” Dr. Assibey stressed.

Dr Eric Osei Assibey was speaking at a roundtable discussion by the Institute of Economic Affairs (IEA) on the theme ‘ the most pressing economic issues facing Ghana’.

Government is working to meet its target to reduce the country’s fiscal deficit to about 3 percent of GDP by the end of 2018.

The figure, at the end of 2015, stood at -6.3 percent.

But figures released also indicate that the country’s expenditure on interest payments has inched up from 3.1 percent to about 6.5 percent of GDP between 2010 and 2015.

In monetary terms, the expenditure on interest payments has gone up from about 4 million cedis to about 9.5 million cedis between the five year period.

By: Pius Amihere Eduku/citibusinessnews.com/Ghana