The Mahama led administration has been caution to jilt its incessant whet of appetite for contracting loans as a major alternative means government financing of budget apart from tax revenues.
Several economist and financial analyst have in recent times admonish government to cut the rate of borrowing which has leaped the country’s debt stock to over GHC110 billion.
Dr. Kofi Amoah, business mogul who is much concerned about government
strong appetite for borrowing, has said, it is high time government tame the attitude of borrowing which has left the country whirling under a huge public debt.
His comment comes in the wake of parliament’s approval for government to spend some GH¢1.9 billion in interest payments for the first quarter of next year – an amount which dwarfs the GH¢1.2 billion to be spent on critical infrastructure.
Current, public debt is in excess of GH¢110 billion and interest payments of more than GH¢10 billion per annum.
Quite apart from the rising public debt stock, it is worrying to note that the debt, mostly short-term, is not being invested in projects what will yield immediate returns to be used in repayments.
Much of government short-term borrowing, he argued, have been spent on consumption expenditure or projects that will take a long time to pay for themselves – leaving the country struggling to repay those debts with either fresh borrowing or tax revenues.
However, the Finance Minister, Seth Terkper has strongly indicated that the government is seriously considering issuing diaspora bonds to raise cheaper funds in a bid to tap into the wealth of Ghanaian emigrants after the country’s first domestic dollar bond issued recently was deemed a success.
“Diapora Bonds is feasible. We are looking at it. Everything is feasible with planning and with stabilization of the economy.
“There have been long standing suggestions that we should be doing diaspora bonds given the large number of Ghanaians who are living outside. We are going to see the extent to which there could be an interest in Diasporans who are holding money,” said Mr. Terkper at a media interaction in Accra.,”
“These are all just plans. We are not going to rush into it but we could see whether this could be a step towards making them buy bonds,” he added.
He explained that, such bonds have been successful when a particular group of people from a country living abroad are targeted to invest in the bonds aimed at raising funds to support growth of the economy.
Again, the government has expressed willingness to enter into agreement of mortgaging one of the country’s oil and gas block with China in line with government’s self-financing loan strategy to secure a loan from the China Development Bank (CNB) for a period of 19 years starting in 2018.
This was a recommendation following the negotiations with the CNB by a task force mandated to discuss the utilization of the US$500 million remaining US$1.5 billion of the US$3 billion deal.
The Finance Minister has explained that, “The premise for the CDB facility, which is in tune with our self-financing loan strategy is that proceeds from any commercial project must be used to pay for any loans that are used to finance the project”.
“The payment was to be from revenue flows from crude oil which is sold on the international market at bench mark prices but crude oil prices fell and that source of financing the loan became inadequate,” Mr. Terkper noted in unison with the NPP’s narration.
He noted that the strategy of self-financing loans was to avoid putting any burden tax payers.
“So we had indicated that once the processes start, there could be other source of financing repayment for the facility. That is the discussion that we are holding now, to see how we can use the proceeds from lean gas and from other gas sources to finance any infrastructure that is built and not put the load for such infrastructure on the tax payer and increase public debt.”
Meanwhile, Dr. Amoah is strongly posited that, “We must become honest with ourselves and admit that borrowing to this extent was a mistake and discontinue the trend. After the debt forgiveness of the 2000s, the country returned to market to borrow from China and the Eurobond and what have you, and these loans have now become an albatrosses around our necks. If we must borrow at all, we must do so to invest in agriculture or agribusiness which yields immediate returns”.
“Are we making the right judgements in our selection of projects for capital expenditure so that five years from now we will not be saddled again with another prospect of going HIPC -- begging for debt forgiveness?”
“You must always be cautious about what you put borrowed money into. We are borrowing to spend on consumption such as health service, education among others. These are important investments but they are rather long-term investments and if care is not taken the country may not be able to service debts used in taking them,” he said.
The gap between the monies spent on infrastructure and interest paid on government debt has been growing, with this year’s gap expected to be about 33 percent and next year’s, using the first quarter alone, points to more than 50 percent.
According to Dr. Amoah, debt is not a bad thing, so long as it ends up in areas that can yield immediate returns and help in repayments.
“We should look at other areas where we could invest borrowed money where immediate returns would be accrued to service the debts and used to finance other forms of infrastructure. When we borrow, or use tax revenue and invest in agriculture, the returns will be almost immediate,” he said.
“For instance if we buy hybrid seeds or invest in agric extension officers to go to assist in good farming practices, the returns will be almost immediate. When we produce enough food, we will be able to curtail the US$1.5 billion food import bill – that’s revenue. And most important apart from reducing the food bill, this will create jobs,” he added.
Without creating value in the people through job creation via manufacturing or agribusiness or any other means, some of the infrastructure being put up will not only be outside the means of the people but also maintenance will be a huge burden on government, Dr Amoah argued.
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