Economist at the University of Ghana Business School, Prof. Patrick Asuming is challenging the thinking behind the President John Dramani Mahama’s decision to prioritize savings in a sinking fund to honor future debts when the country is already wallowing in debt
Government on February 17, 2025, announced it had initiated the buildup of the Debt Service Recovery Cedi Account (Sinking Fund) with a payment of GHS9.7 billion as a buffer for the fifth Domestic Debt Exchange Programme (DDEP) coupon, due in July and August 2025.
The Ministry of Finance had also fulfilled the Payment-In-Cash coupon of GHS6.081 billion to all DDEP bondholders as of February 17, 2025, while the Payment-In-Kind portion of GHS3.46 billion was deposited into bondholders’ securities accounts in accordance with the DDEP Memorandum.
These actions trumpeted President John Dramani Mahama’s commitment to accumulate reserves in the sinking fund as a means of servicing Ghana’s debt without fail and also ensure prompt payment of local investors on the bond market.
In his speech to parliament on the State of the Nation’s Address on Thursday, the president reiterated his commitment.
In spite of these, Prof. Asuming maintains that the idea is misplaced.
Speaking to The High Street Journal in an interview, the economist explained that the fundamental principle of a sinking fund is to accumulate reserves when the economy is booming to ensure that debt obligations can be easily met in the future.
With this background, Prof. Asuming further maintained that Ghana’s economy is in a sorry state and same was confirmed by the President during the State of the Nation’s Address to parliament. He therefore cannot fathom why the president will then decide to accumulate funds for future debt repayment.
To him, if the economy has the capacity to build reserves for the future, then it is more prudent for the president to use the funds to rather pay off the already huge debt hanging on the neck of the economy.
“If the idea is to accumulate money in the sinking fund to repay the debt, well, we are in debt. If we have money, let’s pay off the debt rather than saying we are putting it into the sinking fund. The whole idea is that the sinking fund is to help us accumulate to service the debt. We are already massively in the debt crisis, so what is the point?” Prof. Asuming quizzed.
Beyond questioning the necessity of accumulating reserves in the fund, Prof. Asuming further made a fundamental recommendation concerning the country’s persistent deficit spending.
He argued that the best way to resolve the debt crisis is not just through repayment mechanisms but by addressing the root cause, which is overspending beyond the country’s means.
“The other side is, let’s work not to accumulate the debt in the first place so that the issue about whether we are accumulating enough for the sinking fund to service the debt, that doesn’t come in the first place. Let’s address the deficit. Let’s spend it within our means,” he indicated.
He added, “If we are spending it within our means, we won’t be borrowing too much and the issue about whether we have enough money in our sinking fund or not doesn’t come in. If we start living within our means, we are not accumulating debt, then the sinking fund becomes even more redundant.”
President Mahama while delivering the State of the Nation Address revealed that the Sinking Fund contains a paltry $64,000 and GHS143,000 in the dollar and cedi accounts respectively.
The critique from the economist is a call for a fundamental rethink of Ghana’s fiscal policy, urging the government to prioritize sustainable economic strategies over short-term financial instruments like the sinking fund.
Prof. Asuming believes that rather than setting aside funds when the country is already struggling to meet its obligations, Ghana must focus on reducing its deficit, controlling excessive borrowing, and ensuring fiscal discipline.
