Borrowing is good as long as it is used for investment – Adu Boahene

Business News of Monday, 14 May 2018

Source: citinewsroom.com

2018-05-14

Charles Adu , Deputy Finance Minister

The Deputy Finance Minister Charles Adu Boahene has said borrowing and debt is good for Ghana.

According to him, borrowing is good as long as it is used for investment and not to pay an already existing debt.

Speaking on the Citi Breakfast show, he stated that countries that borrow to invest in capital expenditure which will generate a commercial return benefit from the borrowing.

“It is funny how Ghanaians seem to be allergic to borrowing, as a banker I have always been of the opinion that borrowing is good, so long as it used for investment when you start borrowing to pay recurrent expenditure,” he said.

The deputy finance minister stated that if the government is to limit itself to the revenue it generates, the country will not be able to grow because the revenue generated will only be used to cover the country’s expenditure.

He also mentioned that most countries that are growing run on a manageable deficit, which can be covered by the country’s cash flow.

Charles Adu Boahene explains that borrowing only becomes a problem for a country if the country’s debt starts becoming unsustainable.

“Most countries that are growing run a deficit. The question is how much? A small deficit which you can cover with your cash flow is fine, but when you start running a deficit which 9%, which is 10% and your is constantly piling up, then you run the risk of getting into a situation where you have debt unsustainability then you begin to start borrowing just to pay your debt or pay interest on your debt, then you know it time to call in the Doctor,” he said.

The Vice President Dr Bawumia while speaking at the closing ceremony of the two-day National Policy Summit on Trade and Industry last year August said Ghana would continue to borrow responsibly to grow Ghana’s economy.

But when Dr Bawumia and his party NPP were in opposition, they criticised the Mahama government of having a voracious appetite for foreign loans which they claimed catapulted the country’s debt stock to unsustainable levels.

In defence of the NPP’s borrowing, the veep last year maintained that the debt stock is rather going down due to restructuring.

“Last year the deficit was 9.4 percent of GDP that was where it ended. Thanks to the Asempa Budget it has gone back on a path of fiscal consolidation to bring back the deficit this year to 6.5 percent of GDP,” he said.

Some economists have described the NPP government’s debt management strategy within the first year of its administration have described as unsuccessful.

In their views, the government has not done much to the country’s debt, which has left the country on a perpetual debt jolly ride.

The comments follow the latest Bank of Ghana report which shows that Ghana’s debt has reached 138.8 billion cedis equivalent to 68.7 percent of GDP, as at November 2017.

The Head of Economics Department at the University of Ghana, Professor Peter Quartey told Citi Business News the government must channel its borrowing into investment yielding ventures which will pay off eventually by themselves if possible.

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