Four major factors, namely, impact of COVID-19 pandemic, the banking sector clean-up, excess capacity charges, and the effect of the Russia-Ukraine war, drove Ghana to seek assistance from the International Monetary Fund (IMF) to correct its fiscals, Vice President Dr. Mahamudu Bawumia has said.
According to the Vice President, direct COVID-19 expenditure in two years, 2020 and 2021, totalled GH₵12billion, the banking sector clean-up cost the country GH₵25billion, whereas the energy sector excess capacity payments, so far, reached GH₵17billion. These three items of expenditure cumulatively amounted to GH₵54billion, the equivalent of some US$7 billion, which was borrowed.The Ministry of Finance estimates that the interest payment on the three items amounts to GH₵8.5billion annually. This is about 23 percent of Ghana’s annual interest payments of GH₵37billion.
The Vice President said this is more than one-third of the amount spent on government flagship programmes.
“To put the expenditure on the three items in perspective, it is important to juxtapose it against the total expenditure (releases) on some of the government’s key flagship projects, including Free SHS, One District One Factory, Planting for Food and Jobs, Development Authorities, Ghana Card, Zongo Development Fund, NABCO, and teacher and nursing trainee allowances.
“The data shows that the expenditure on these key flagship programmes over the five-year period between 2017 and 2021 amounted to GH₵15.62billion, compared to the GH₵54billion expenditure on these exceptional items.
The expenditure on the three exceptional items amounted to more than three times the expenditure on the flagship programmes over five years,” Dr. Bawumia said.
Without the GH₵54billion debts for the three exceptional items, he noted that Ghana’s debt to GDP would be within the sustainability threshold of some 68 percent, instead of the 76.6 percent at the end of 2021.
Admittedly, he said the Russia-Ukraine war spiked energy and food prices globally, and pushed inflation in many advanced economies to 30-40-year highs; whereas in Ghana, it reached 29.8 percent in June 2022.
With the challenges in accessing the international capital market, Dr. Bawumia said balance of payments support was needed to bridge the financing gap, stabilise the economy, create space to implement structural reforms, and restore debt sustainability.
“It is important that we take decisions that will lead to the benefit of the country, regardless of whether we are going to the IMF for a programme or not.
The immediate task, he said, is to restore fiscal and debt sustainability through revenue and expenditure measures and structural reforms, as well as curtailing non-concessional borrowing to enhance debt sustainability.