HIPC RISING…As Akufo Addo’s Budget Deficit is Highest In Ghana’s History

The International Monetary Fund (IMF) has further reinforced criticisms of unsustainable economic management of the Akufo Addo administration by predicting that Ghana’s fiscal deficit will reach 16.4 per cent of GDP this year, making it the largest in the country’s entire history.

 Officials are piling the blame on the COVID-19 pandemic. However, the government was under serious criticism of its overspending way before the pandemic hit internationally.

The projection is not only the largest in Ghana’s history, it is the largest in the entire African continent.

Also, the IMF projection warn that the government’s debt will increase from 62.8 per cent of GDP in 2019 to 76.7 per cent in 2020. This will effectively take Ghana to the debt unsustainability days where it was forced in 2000 to opt for the Highly Indebted Poor Country (HIPC) tag.

 Finance Minister Ken Ofori-Atta, in his mid-year budget presented in July, revised the country’s 2020 fiscal deficit projection from 4.7 per cent to 11.4 per cent of GDP to accommodate the fiscal impact of the pandemic. However, the government’s extra spending on mysterious projects since then, has driven the IMF to make its damning projections.

These expenditures are not unrelated to knee-jerk election spending, experts have told Whatsup News.

 Meanwhile, the IMF had made its projections contained in its October 2020 Fiscal Monitor publication, by taking into account the expenses incurred by the government in cleaning up the financial and energy sectors – costs which government has consistently excluded from its fiscal deficit calculation.

 According to economist Dr. Theo Acheampong in a statement released about a day ago, the rising debt raises significant debt sustainability concerns, especially for external debt servicing, with various Eurobond coupon payments due in the coming months.

 The Fund stated that the fiscal deficit will decline to 9.3 per cent of GDP in 2021, before easing to 6.3 per cent of GDP in 2025 – meaning it will take longer than the government currently expects to restore compliance with the 5-percent-of-GDP deficit rule.

 The IMF Resident Representative Albert Touna Mama has called on the government to pursue a wide range of fiscal reforms to deal with the widening deficit.

Ghana’s public debt stock as at September 2019 was pegged at about GH¢208 billion, or approximately 60 per cent of the country’s gross domestic product (GDP).

Yet, the Finance Minister, Ken Ofori-Atta is bent on raising more debt. He plans to return to the Eurobond market to raise $3bn to pay for expenditure items the country cannot fund from domestic sources.

The New Patriotic Party (NPP) administration and its Economic Management Team led by Vice President Mahamudu Bawumia had racked up almost GHC 160 billion of the debt in just four years. This is almost half of the entire debt stock of Ghana since independence.

This incredible feat is achieved despite the spirited promises made by the administration that it will not frolic in debt like all previous administrations.

The IMF says the debt-to-GDP ratio will drop slightly to 74.7 per cent of GDP in 2021, but this will still be deep into HIPC levels.

Amidst accusations that the Bank of Ghana and the Finance Ministry led by Ken Ofori-Atta was deliberately massaging economic figures to make the country look good economically, the reality is that the fundamentals have collapsed, experts say.

In fact, on March 24, 2015, while in opposition and Ghana’s debt to GDP was around 67%, this is what the current Vice President Mahamudu Bawumia said about the then administration led by John Dramani Mahama: “At 67% of GDP, Ghana’s debt stock has crossed the critical 60% of GDP level that developing countries with limited access to capital flows should worry about in terms of debt sustainability.”

Dr. Bawumia who was speaking at the Distinguished Speaker Series painted a very disturbing picture for that debt level that was way lower than the current state. He continued: “In fact, Ghana is right back to the debt unsustainability that led to HIPC. However, HIPC debt relief will not be available again. Ghana’s status can thus best be described as that of a Highly Indebted Lower Middle Income Country (HIMIC),” Dr. Bawumia stated.