As engagements continue with the International Monetary Fund (IMF), economist and Center for Social Justice (CSJ) fellow Dr. Theresa Mannah-Blankson has called on managers of the economy to urgently organize a conference with the three main categories of creditors – multilateral, bilateral and commercial (private) – to make proposals for the restructuring of the nation’s debts.
While acknowledging that it “won’t be easy”, she felt that an open conversation about the scale of the problem, coupled with a mix of proposals regarding changing the duration of existing debt and adjustments to coupons and interest rate, will allow the government some budgetary leeway in the short term.
“Our creditors are not just going to accept everything we say; they will obviously look at the situation presented to them to make a decision,” warned Dr Mannah-Blankson when speaking remotely on the topic “Ghana’s Debt Restructuring and Options for a Sustainable Economic Recovery”. at a public forum organized by the Economic Governance Platform (EGP) and Advocates for Christ.
Dr Mannah-Blankson said about US$500 million was to be repaid in international capital markets over the next six months. More worryingly, some US$7 billion is owed domestically over the next 18 months – including US$2 billion held by foreign investors – and will further aggravate the local currency’s difficult situation.
The economist added that without significant restructuring of the economy in addition to strict enforcement of watertight legislation, the country will be back to the institution of Bretton Woods most likely in a cycle of about four years.
To avoid this outcome, she proposed institutional reforms, including a legally backed limit on the level of borrowing, particularly in terms of revenue generated and gross domestic product (GDP).
Other measures proposed by the CSJ Fellow include a commitment to the streamlined convergence criteria for a single, common currency in the sub-region; and the exact implementation of the law on fiscal responsibility, with a medium-term objective of 3% to limit losses through tax exemptions.
Offering diverging views, Economist and Associate Professor of Economics at the Institute for Statistical, Social and Economic Research (ISSER), Professor Godfred Charles Ackah, argued that Ghana’s debt level does not is not unusually high compared to historical levels across the world.
He suggested that a self-imposed austerity policy, which has limited the central bank’s ability to finance government spending, has led to disproportionate external borrowing… which is costly.
Citing IMF sovereign debt data from the 1880s, the economist suggested that the comparatively higher debt-to-GDP ratio of more developed economies – around 50% compared to 20% in developing countries – was directly responsible for their growth.
Currently, Japan leads in this measure with about 250%, followed by Italy (154.8%), the United States (133.4%), Spain (120.2%), France (115.8%), Canada (109.9%) and Great Britain (108.5%). ).
According to Professor Ackah, the success of these otherwise heavily indebted countries can be attributed to their central banks holding much of their debt.
“The problem is that in Ghana, external bodies like the IMF say the central bank should have no funding from the government. What is this for? The central bank that prints its own currency should not support the government? We also passed a Fiscal Responsibility Act which pushed the government into the international market to make things right,” he explained.