Despite the high appetite for borrowing by the current administration which has contributed to the economic challenges of the country, the next administration has sent indications that it will also continue borrowing but on a different trajectory.
Over-borrowing by the NPP administration led to the ballooning of the country’s public debt stock. A Debt Sustainability Analysis (DSA) jointly conducted by the World Bank and the IMF in 2019 revealed that the country’s debt levels were at unsustainable levels. In 2022 the country defaulted in its debt service payment. Coupled with other economic challenges, the country had no other option than to seek the intervention of the IMF.
Following the IMF programme and its accompanying debt restructuring which brought untold hardships to pensioners, mutual fund holders, and financial institutions among others, many analysts have warned the next administration to take lessons from the impact of the excessive borrowing of the Akufo-Addo-led government.
These economists and financial analysts say the next administrations should be very wary of borrowing and must utilize the already existing resources to generate revenues to support the socio-economic development.
However, there seems to be an indication that the next administration will continue with the borrowing spree.
Former Minister for Finance under the erstwhile NDC administration, Seth Terkper, who some have tipped to be the next finance minister has revealed that Ghana in its current state cannot progress without borrowing.
In his words, borrowing is inevitable sending signals that the next government does not intend to cut borrowing. He justifies that Ghana as a Lower Middle-Income Country (L-MIC) cannot progress without the support of borrowing. Moreover, the current state of the economy which is in debt default and debt distress requires some more loans to pull the economy.
“As a developing or now Lower Mid-Income Country (L-MIC) since 2008, & in debt default/distress, borrowing is inevitable,” the former minister of finance wrote in a post on X.
However, he was quick to add that the borrowing will take a different trajectory so that they do not burden the economy and throw the country into another debt distress. He noted that the borrowing will only fund capital infrastructures with the potential to pay back the loan.
Seth Terkper further revealed that the borrowing will also be complemented by efforts to raise domestic revenue, expenditure cuts, and low deficits creating a fiscal space for development while keeping public debt in check.
“But we must raise revenue, cut expenses/arrears & lower deficits to repay debt faster. It will take time to be an Argentina,” Seth Terkper further stressed.
He added that “in the short-term, the goal is to borrow for only the Capital Budget, with commercial projects repaying their respective loans from project revenues i.e (Self-financing). This way, we free development aid & low-interest long-term loans for social projects eg. schools & hospitals.”
Terkper’s assertions suggest that Ghana can return to the Eurobond Market to source loans to fund projects in the country. Eurobonds as well as other international borrowing platforms have been a major source of loans for the current administration.
However, with the default by the current administration, it is unclear how the market will respond when the next government makes a move.
