Govt discounts IEA’s claim of excessive borrowing
The government is hopeful of sustaining the country’s growth and development programme through a prudent management strategy that will not add to its public debt.
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It has consequently adopted a ‘smart-borrowing’ strategy, which is a move away from the overreliance on the traditional funding sources that adds to the taxpayers’ burden for the development of capital projects.
The basis of this “New Debt Management Policy” lies in the use of commercial loans by State-owned Enterprises (SOEs) that benefit from the loans and use them to render services for income and fees.
It also requires that they sign on-lending agreements with and establish joint escrow or debt service accounts with the Ministry of Finance to repay the loans from the fees and charges they collect from consumers.
Fiscal rules
The government says once this takes root, “we do not have to put the loans on the taxpayer and bemoan the level of our public debt, even as we develop our infrastructure.”
A statement issued by the Ministry of Finance, therefore, rejects the assertions by the Institute of Economic Affairs (IEA) that the country is at the brink of a financial collapse due to the growing public borrowing and the lack of fiscal rules to cap it.
“All nations borrow for major capital or infrastructural development. Therefore, the current focus of government policy is on “smart-borrowing” to sustain growth and development without unduly increasing “pure” public debt”, the statement said.
“The traditional practice of putting the total cost of huge infrastructural projects or costs on our budget has also failed us woefully. For example, prior to 2009, a significant value of infrastructure projects (notably the roads that we now call “Gang of 6”) was put on the national budget.
“It is obvious that we cannot continue the phenomenon of making taxpayers bear the full burden of loan repayments. Rather, the projects or the SOEs that government provides guarantees should take over the loan repayments,” the statement added.
Financing infrastructure
The statement, which was signed by the Finance Minister, Mr Seth Terpker, said part of the current fiscal pressure with high cost of domestic debt service emanated from the Bonds that were issued between 2010 and 2012 to finance infrastructure projects.
The government, therefore, has started to correct the unsustainability of the traditional debt management with specific strategies that were approved by Cabinet and Parliament in the 2013 through the 2015 Budget.
The statement noted the omission in the projection for the debt to GDP ratio, which did not consider the potential GDP growth and also ignored the fiscal stabilisation programme that had been active in the last few years.
It said the country’s debt management posture and paradigm shifts had been informed by its Lower Middle-Income status that required the establishment of new processes and institutions to strengthen its debts and fiscal management.
“The country continues to have a big infrastructure gap that requires financing from diverse sources, including partnership and risk-sharing with the private sector— not just the public sector, as has been the practice for a very long time now,” it stated.
Paradigm shift
The debt management posture and paradigm shift is also informed by the need for infrastructure development, which is also boosted by the expansion of the services and agricultural sectors, as well as discovery of oil-and-gas that requires financing to put the country on the path to sustainable growth and development.
The statement also made reference to initiatives in the 2015 Budget Statement, which included the On-lending and Escrow (debt service) account policy, the establishment of Ghana Infrastructure Investment Fund, the setting up of the Sinking Fund Account, which in the 2014 Budget the government announced that it will “cap” the Ghana Stabilisation Fund (GSF), under the Petroleum Revenue Management Act (PRMA), at US$250 million to enable it open Debt Service and Sinking Fund Accounts to start paying down the country’s “bullet” loans—notably treasury bills and medium and long-term domestic and foreign (sovereign) bonds.
The statement said it was erroneous for the IEA to assert that Ghana did not have fiscal rules or laws by simply pointing to gaps and ignoring the overall status quo.
Ghana has a comprehensive statutory framework to support sound debt and public financial management, including the 1992 Constitution (Art. 174 to 189), the Financial Administration Act (Act 654) and the Financial Administration Regulations (LI 1802).
“The BOG law includes limits on borrowing from the central bank. Furthermore, the ECOWAS single convergence criteria—to which Ghana has subscribed—contains several fiscal rules,” the statement concluded.
Read Finance Minister's write-up on debt management
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