Some economists are expressing varied opinions on the government’s plan to impose a debt ceiling to shield the economy from running into another debt crisis in the long term.
The reactions follow the revelation by the Deputy Minister of Finance in Charge of Revenue, Dr. Alex Ampabeng that the ministry intends to put a proposal before Cabinet aimed at legislating a ceiling that will control borrowing. He mentioned that the intended debt ceiling is tailored around the recommendation of the International Monetary Fund (IMF) and the World Bank which suggest 55% debt-to-GDP.
“There are proposals to amend our PFM. One of the things is that we want to have a debt ceiling. As part of fiscal rules, the minister even signaled in the mid-year budget to restore the 5% fiscal rule,” the Deputy Minister indicated.
He further explained that “both IMF and World Bank usually predict sustainable Debt-to-GDP of 55%. Which is the direction we currently are working with. We are bent on doing anything possible so that we don’t go above 55%.
Following the announcement by the Deputy Minister, some economists have expressed divided views on the feasibility and potential of the plan to address the intended purpose.
Senior Economists at the Policy Initiative for Economic Development (PIED), Dr. Daniel Amateye Anim tells The High Street Journal that the intended plan is a missed priority. He explains that given the current state of the economy which needs stimulus to grow, just imposing a debt ceiling will stifle the growth of the economy.
He therefore stressed that the focus should be prudent and judicious utilization of the loans which inures to the benefit of the economy admitting that borrowing in itself is not wrong.
“The practicality of the intended policy is the issue. I think if there would be infrastructure development that ought to be done with the propensity of stimulating economic growth, the question is, are you going to wait for the next two years before you apply because you’ve reached that ceiling? In principle, going for debt is good, it is about the utilization of that debt which we have not been doing very well. So to me, it is not about how much money you borrow from the capital market or from wherever. The critical thing is that whatever money that comes into the economy ought to be used prudently invested in the critical centers of the economy that may propel down to generate sufficient revenue to meet obligations,” he stated in an interview.
However, Associate Professor of Economics at the University of Ghana Business School, Prof. Patrick Asuming says the intention is a laudable step that will play a crucial role in shielding the economy from running into unsustainable debt. He was also quick to add that imposing just a debt ceiling cannot be the final solution to the country’s public finance problems.
Prof. Asuming further added that as it stands now the plan is vague as a lot of details are needed concerning the actual direction. According to the economist, the policy must be clear whether the government is opting for a deficit ceiling or an actual debt ceiling.
He explained that, “To think that just imposing a debt ceiling will be a solution to our long-term public finance problems is not the case. But it can go a long way to help. A lot of details are required. It’s not clear whether we are imposing a deficit ceiling or an actual debt ceiling. You have to think about whether it is a quantum amount or a percentage of GDP. Is it going to be in cedis or dollars? If you put a debt amount in cedis, even if the nominal debt is the same and the currency loses value you easily reach the target.”
He further raised a series of questions on how such a debt ceiling law would be enforced to ensure compliance by public officials citing precedence of how other financial management acts have been breached in the past without any sanctions.
“How is it going to be enforced? What happens if it is violated? Don’t forget we have different aspects of policy ceilings not necessarily debt. We have had the Bank of Ghana Act, [which has been] breached a few times and nothing has happened. So it’s a series of things that are required. Series of institutional reforms regarding how we spend government money, some transparency measures, and expenditure controls. It is a whole architecture about the fiscal governance structure that is required but definitely, putting a debt ceiling will go a long and help in some way,” he stated.
Meanwhile, the Dean of the University of Cape Coast Business School, Prof. John Gatsi on his part believes there is an already existing debt ceiling law. He therefore cannot understand the need for a new debt ceiling.
“There is ALREADY an implicit debt ceiling and deficit ceiling accepted by the government into the budget at 70% debt to GDP and 5% deficit in the ECOWAS convergence criteria,” he stated.
Ghana’s total public debt as of June 2024 stood at GH¢742 billion representing 70.6% of GDP. If the debt ceiling is successfully and effectively implemented, successive governments will ensure that our debt to GDP is maintained below 55%.
However, experts are raising crucial questions on this policy initiative and its feasibility to permanently address the country’s debt conundrum without compromising economic growth and development.
