Government must be vigilant over debt- CEPA

Accra, Oct. 19, GNA - The Centre for Economic Policy Analysis (CEPA) on Tuesday asked the Government to be vigilant over the huge build-up in public debt, which could erode economic gains. Briefing the media ahead of the launch of its 2010 mid-term report on the economy, Dr Joe Abbey, Executive Director of CEPA, said it is important for the Government to keep an eye on debt sustainability in order to avoid falling back to the status of a highly indebted poor country (HIPC).

The public debt stock, after falling sharply on account of the highly indebted poor country (HIPC) initiative and the multilateral debt relief initiative involving external debt cancellation and debt forgiveness has begun rising and in 2009 rose from $9.2 billion by a little over $1.0 billion to $10.3 billion at end-June 2010. Dr Abbey said there is the likelihood that the debt could go up to unsustainable levels unless the economy expanded and grew to enable the Government to service its debts.

"In respect of budgetary operations, the outlook points to a 2010 deficit at least as large as that of 2009 - missing the target by a wider margin than in 2009," he said, citing increase in public sector pay policy due to the full implementation of the Single Spine Salary Structure.

He said the public sector wage bill for 2010 would increase by more than the 17 per cent projected.

Interest payments would also be higher than projected because of the higher size of borrowing and higher cost of borrowing by the Government. Without further net accumulation of payment arrears, development spending would also exceed its target.

Government has projected a deficit target of 8.0 per cent of GDP for 2010.

Dr Abbey said the upward revision from 6.0 per cent of GDP was a reflection of "a less favourable outlook for tax revenues as well as upward revisions to domestic interest expenditures" as was the case in 2009.

On the fiscal operations, it noted that the 'ambitious' budget deficit target set for 2010, under the stabilisation programme, was proving difficult to achieve on account of lower expected revenues and increased expenditure outturns.

This coupled with the anticipated slow growth in 2010 after that of 2009 implies that the process of fiscal consolidation - the driving force in the stabilisation programme - may not be sustainable since tax revenue targets set on assumptions of higher growth may not be achieved. On inflation, Dr Abbey said the current inflation targeting policy had restricted the availability of credit, which has crowded out the private sector due to high interest and lending rates.

On the domestic money and financial markets, he said strong investor interest in the domestic bond (Treasury bills and notes) market had resulted in interest rates on the short-dated Government Treasury Bills and notes generally declining along the full spectrum of the yield curve.

There has also been a lengthening of the average maturity of these Government Securities as inflationary expectations ease. Secondly, the strong investor interest includes non-residents as well. This is shown in the shares of their holdings of Government Securities - rising from 9.6 per cent at the end of 2009 to 17.6 per cent at the end of June, he said. 19 Oct. 10