The government has instituted measures to help contain public-sector spending and borrowing as part of efforts to attain a sizeable debt to Gross Domestic Product (GDP) ratio in 2014.
The debt management strategy, according to the Director of Budget at the Ministry of Finance, Mr Patrick Numoh, would provide cost efficient access to funds from the international and domestic markets to meet its development need.
He said the government would also focus on managing its liquidity, sourcing for long term financing for its capital expenditure, generating revenue from self-finance projects, as well as target the external bond market to raise enough capital to undertake infrastructural projects.
The country’s public debt stock increased by 22.7 per cent from US$19.15 million at the end of 2012 to a provisional estimate of US$23.5 billion at the end of September 2013.
As a percentage of GDP, the public debt increased from 49.3 per cent at the end of 2012 to 52.0 per cent by the end of September 2013.
At the 2014 budget dissemination workshop for regional budget officers/ regional and district information officers in Accra, Mr Numoh explained that the decision to manage the debt was one of government’s fiscal policy initiatives to strengthen the economy in the years ahead.
More debt control measures
The Minister of Finance, Mr Seth Terkper, also explained that the reliance on short-term domestic bonds to finance capital projects and the relatively high rates of interest had resulted in high debt services.
“Our main strategies include refinancing and extending the tenor of loans and bonds for financing the capital budget; implementing recovery schemes for commercially viable projects; and better financing of the capital budget with sources from the Annual Budget Funding Amount (ABFA) and Value Added Tax (VAT) feeding into a supporting Debt Service Account to provide certainty of interest and loan repayments to the markets,” he further explained.
Budget on debt stock
The 2014 budget statement presented to Parliament on November 19, 2013, the country’s external debt totalled US$10.8 billion at the end of September 2013, up from the previous year’s stock of US$9.15 billion.
Meanwhile, domestic debt amounted to US$12.7 billion as at the end-September 2013, representing 54.1 per cent of public debt and 28.9 per cent of the year’s GDP.
The stock shows an increase of about 27.1 per cent over the end-2012 a domestic debt of US$9.9 billion.
Again, in 2013, loans totalling US$1.8 billion were received, including the US$1 billion Eurobond.
Mr Terkper explained that in 2013, the government took steps to restructure domestic debt, including substituting portions of domestic debt financing for external debt financing (part of the 2023 Eurobond) and the issuing of a year domestic bond in August.
These measures, he explained, had started yielding some positive results, as the average rates on government debt instruments have seen a reduction from 23 per cent at the beginning of the year to 19.5 per cent as at the end-October, 2013.
Infrastructure development
Mr Nimoh also explained that the government would lift the burden of infrastructure development from the budget through the implementation of the Ghana Infrastructure Fund (GIF).
The GIF is an innovative way of financing development expenditure to accelerate development and also lessen the burden on the budget as a regular source of funding to ensure sustainable development.
The 2014 budget, he said, had been designed to consolidate the country’s middle income status and deal with the new challenges of financing development.
Infrastructure development, he said, had faced lots of challenges in terms of its financing, and the ministry had always tried to finance it through the budget or borrowing.
He also explained that the ministry would set up a quasi fiscal body that would oversee the GIF to ensure that before any project is embarked on, they go through a process of propelling the project, knowing exactly how they are going to fund them.
He said the sources of fund to support the fund would include a 2.5 per cent vat that would be dedicated to the GIF “Every year we allocate some money from the Annual Budget Funding Amount (ABFA), with additional funds from the oil revenue for infrastructure development and these will all go into the GIF,” he added.
He also disclosed that the government had decided to use part of the Eurobond and the ABFA to fund road contracts, and he believed that will enable the country to clear all the arrears of road contracts, at least up to the beginning of this year, and also enable them to service facilities that are obtained to carry out project.