Posted on: www.dailyguideghana.com
By William Yaw Owusu
Monday, February 23, 2015
The Ministry of Finance and Economic Planning (MoFEP) is disputing policy, research and analysis think tank Institute of Economic Affairs (IEA) claim that Ghana is on the brink of economic collapse as it happened in 1985.
According to the IEA, apart from Ghana being on the brink, the country did not also have fiscal rules or laws for the management of the economy.
In the ensuing debate, the sector Minister Seth Terkper, has issued a statement at the weekend, saying the IEA made some “sweeping assertions” in its analysis of the economy.
He said “the projection of the debt/GDP ratio does not take into account the potential GDP growth,” adding that there was “complete disregard of the fiscal stabilizers that have become active over the last few years.”
According to the minister, the government had started to correct what he called “unsustainability of traditional debt management with specific strategies that were approved by cabinet and parliament in the 2013 through 2015 budgets.”
He mentioned the use of grants and concessional financing, commercial and quasi-commercial projects which were going to be fully or partially self-financing of non-concessional or commercial loans, as well as prudent public debt computation framework and on-lending and Escrow/debt service accounts with SOE that could not borrow were some of the interventions in place.
He further said the establishment of Ghana Infrastructure Investment Fund (GIIF), establishment of Sinking Fund Account, less reliance of guarantees as well as a moratorium on new loans and contracts were also being pursued vigorously.
The Minister said that the IEA’s trajectory of debt also “ignored the medium term prospects” for the country adding “hence, did not make room for significant GDP growth.”
“Evidence shows clearly that the rate of growth and base of Ghana’s GDP went up significantly between 2010 and 2012, mainly due to the rebasing of the GDP, fast growth of service sector, increased construction activity, rebound of cocoa production, and exports of crude oil (for the first time),” he pointed out.
He said the “2015 Budget notes that the period from 2015 through to 2017/18 will experience further increase in crude oil and, notably, the advent of gas production,” adding “we therefore disagree with the IEA’s dire projection of the debt/GDP ratio that does not take into account of potential rapid GDP and the new debt management policy.”
“All nations borrow for major capital or infrastructure development; therefore, the current focus of government policy is on smart borrowing to sustain growth and development without unduly increasing pure public debt,” he said.
He said the traditional practice of putting the total cost of huge infrastructure projects or costs on the budget “has failed woefully,” emphasizing that “prior to 2009, a significant value of infrastructure projects was put on the national budget.”
He added that part of the current pressure emanated from the bonds that were issued between 2010 and 2012 to finance roads that “we now call the Gang of Six.”
“It is erroneous to assert that Ghana does not have fiscal rules or laws by simply pointing to gaps and ignoring the overall status quo,” the Minister said adding “Ghana has a comprehensive statutory framework to support sound debt management including the 1992 Constitution, Financial Administration Act (Act 654) and the Financial Administration Regulation (LI 1802).”
Apart from that, the minister said “the Bank of Ghana law includes limits on borrowing from the central bank. Furthermore, ECOWAS single convergence criteria to which Ghana subscribes contains several fiscal rule.”