President John Dramani Mahama
Civil Society organisations (CSOs) have indicated that government’s spending cuts and tax rises will intensify after the December 2016 elections which would lead to job losses.
According to the organisations, “Only after the elections will the true International Monetary Fund (IMF) austerity programme begin.”
In a recently published report, titled: “The fall and rise of Ghana’s debt trap: How a new debt trap has been set,” the organisations said urgent action was needed to ensure Ghana does not fall into a debt trap in which government spending would continue to fall with negative impact for poverty, inequality and economic growth while debt stays high.
They recommended that debt payments must be cut to prevent the country from slipping into the debt trap.
“At the moment, all the costs from irresponsible lending and borrowing, and the decline in oil and other commodity prices, are falling on the people of Ghana, and none of them on the lenders. We have made recommendations on how the debt trap can be avoided through lenders sharing in the burden of failed lending and the external economic shock of falling commodity prices.
“In addition, to prevent this trap being created again, there needs to be greater transparency and accountability in relation to debt on the part of the government of Ghana and lenders, tax justice to ensure that more of the revenue generated in Ghana stays in the country and is available for social spending and public investment, and a reorientation of the Ghanaian economy away from reliance on primary commodities.”
Less money spent on Ghanaians
Owing to the aforementioned, the organisations said the amount of money that government spent per person had been falling and was expected to continue to fall.
“In this context, it will be difficult for the rate of improvements in social services such as in health and education, and therefore in social outcomes to be maintained.”
Commenting on the idea of a sovereign oil fund, they said it was potentially a good one, especially since it would spread one-off wealth received from resource extraction over many years, and help prevent the ‘Dutch Disease’ where oil revenue inflows pushed up the exchange rate and made other economic activity uncompetitive.
“However, these aims are undermined by external borrowing, which spreads costs over many years, and adds to the Dutch Disease by pushing up the exchange rate at the time the loan is taken out.
“Ghana has been earning very little income on its oil fund at the same time as paying high interest rates on external government debt. If the Ghanaian government had borrowed $500 million less from external private lenders, and used the oil fund money instead, it would be paying around $45 million less in interest every year, whilst receiving $3.7 million less in income – a net saving of over $40 million a year.”
Debt payment default
The Ghanaian government should consider defaulting on the private debt which speculators lent irresponsibly and were not expecting to be repaid, and on which significant interest had already been paid. Or at the very least threaten to default on these private external debts so as to motivate creditors to come to the table and agree to better terms or to take part in a debt conference to negotiate a comprehensive debt restructuring, the organisations indicated.
“The IMF should accept that its expectations of Ghana’s economy are over-optimistic and place the entire burden on the people of Ghana and none on the lenders, state that it will continue to lend if Ghana defaults on the private external debt, and require a restructuring of all of Ghana’s external debt before a certain date, ideally through a comprehensive debt conference in order to incentivise private and other creditors to negotiate.”
By Samuel Boadi