Ghana's domestic debt rises sharply

Ghana's domestic debt rose to 5,797.3 billion cedis at the end of 1999, the Bank of Ghana (BOG) said in Accra on Monday. This is an increase from 875.5 billion cedis in 1995, the bank said.

The BOG put Ghana's external debt at 5.9 billion dollars at the end of 1999 - a significant rise over the 3.4 billion dollars debt in 1995. Dr. Kwabena Duffuor, central bank governor, attributed the sharp rise in debt to the increasing use of treasury bills to finance the budget deficit, high interest rates and rolling over debts as they mature.

He was giving an overview of the debt situation in Ghana at the opening of a weeklong workshop on the practical aspects of domestic debt management organised by the West African Institute for Financial and Economic Management (WAIFEM).

WAIFEM is made up of Ghana, The Gambia, Nigeria, Sierra Leone and Liberia. "The burden of debt on government expenditures is heavy in Ghana as interest payments on debt rose to almost 24 per cent of total expenditures in 1998, and 23 per cent in 1999 with the share of domestic interest payments at 20 per cent in 1998 and 17 per cent last year," Dr. Duffuor said.

"Clearly, the impact of the domestic debt on government expenditures is even more severe than that of the external debt." He said the recent emphasis on managing domestic debt is a departure from the past where emphasis was on managing external debt. The purpose, he said, is to prepare Ghana to meet the requirements of a single ECOWAS monetary zone.

Dr. Duffuor noted that the sub-region's ability to deal with the domestic debt problem would partly determine the success of the ECOWAS monetary zone. He said the most significant cause for the increasing domestic debt in the sub-region remains the governments' budget deficits and necessity to borrow money to cover them.

"Yet, over the years, the role that effective management of government debt can play in financial market and financial market development through the setting of benchmarks for investments in domestic financial assets has not been accorded due attention," he said.

He called for increased information for investors about stock exchanges in the sub-region, saying there must be cross border trading of government debt instruments. "The introduction of a sustainable debt strategy for public and publicly guaranteed domestic and external debt is important if countries of the West Africa region are to overcome the debt burden as a constraint to economic growth," Dr Duffuor said.

He asked WAIFEM members to establish institutional arrangements - especially between central banks, ministries of finance and the stock markets - so that they do not work at cross-purposes