2025 Budget: More rhetoric than reality — Economist

A Development Economist at the Centre for Social Policy Studies of the University of Ghana, Dr George Domfeh, has described the 2025 Budget Statement as "very usual" and lacking in surprises. 

He said the budget presented to Parliament by the Minister of Finance, Dr Cassiel Ato Forson, last Tuesday, was more of the same political rhetoric, rather than a bold new vision for the country’s economy.

Reacting to the budget in an interview with the Daily Graphic, Dr Domfeh said it followed a familiar pattern of lamenting the state of the economy and blaming the previous government.

“The first thing that I think pushes what we saw is that anytime there's a change in government, the new one will try to lament, complain and paint the old government black," he said.

Dr Domfeh cited examples of previous governments, including the opposition New Patriotic Party (NPP) and the governing National Democratic Congress (NDC), using similar tactics to describe the state of the economy.

The economist also expressed surprise that the minister's presentation did not provide a clear explanation for the economy's supposed crisis.

“Figures gave him away," he said, adding, "For example, as soon as he said the economy was in crisis, Dr Cassiel Ato Forson immediately talked about debt. And when you talk about debt, you can see that NDC doesn't have a good record.”

Debt

Providing a historical context to the country’s debt situation, Dr Domfeh said it was not a new phenomenon and highlighted the significant increase in debt under the first Mahama administration.

“When President Kufuor took over from Rawlings, our total debt stock stood at $7.1 billion.

“Kufuor pushed it to $8 billion due to the Highly Indebted Poor Country (HIPC) initiative, but the net addition was below $1 billion,” the development economist said.

In contrast, he said President Mills-Mahama first administration increased the debt from $8 billion to $22.2 billion.

Dr Domfeh noted that Ghana's debt-to-GDP ratio has fluctuated over the years.

“At the time Rawlings was exiting, our debt-to-GDP ratio was 182 per cent, which is above the West African Monetary Institute threshold of 70 per cent," he said.

However, due to the HIPC initiative, Dr Domfeh said the debt-to-GDP ratio declined to 26 per cent by 2006.

Despite this improvement, he said the NDC administration under President Mahama increased the debt-to-GDP ratio from 32 per cent to 71 per cent by 2014.

“This plunged the country into a debt crisis," Dr Domfeh stated, adding that “the debt-to-GDP ratio further increased to 72.8 per cent in 2015 and 73.1 per cent in 2016.”

Rebased

According to Dr Domfeh, the debt situation improved in 2018 when the country rebased its economy, moving from 2006 concern prices to 2013 concern prices.

This change resulted in a 24.2 per cent increase in GDP, reducing the debt-to-GDP ratio.

He noted that President Mahama's debt-to-GDP ratio of 73.1 per cent in 2016 was reduced to 55.9 per cent after the rebasing.

However, Dr Domfeh pointed out that the debt-to-GDP ratio increased slightly to 62.5 per cent under Ken Ofori-Atta's management.

He emphasised that this increase was manageable, especially considering the positive primary balance during that period.

The debt situation took a turn for the worse in 2020, with the debt-to-GDP ratio jumping to 76.1 per cent.

Dr Domfeh attributed this increase to excessive borrowing and a significant gap between revenue and expenditure.

By 2021, he said the country’s debt had ballooned to $60 billion, up from $29 billion in 2016.

This prompted the need for debt renegotiation due to payment concerns.