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Business News of Tuesday, 6 August 2019


Debt to GDP: Stop jubilating and limit borrowing – IFS to gov't

Research Fellow at IEA, Lesly Dwight Mensah Research Fellow at IEA, Lesly Dwight Mensah

The Institute of Fiscal Studies (IFS) has asked government to be measured in its jubilation over the Debt to GDP Ratio hitting below 60 percent.

The debt-to-GDP is the ratio of a country’s public debt to its gross domestic product (GDP). By comparing what a country owes with what it produces, the debt-to-GDP ratio indicates its ability to pay back its debts.

During the mid-year budget review, Finance Minister Ken Ofori Atta mentioned that Ghana’s debt level is sustainable and positive for growth.

But the IFS disagree, according to Research Fellow, Lesly Dwight Mensah the current figures are based on the Re-Basing of the economy.

“The fall in the debt-to-GDP ratio to below 60 since the rebasing exercise last year has given a sense of security about the debt position.

“But reality is that we should not take any comfort in a lower debt to GDP ratio. We are saying that a better way to assess the debt and its sustainability is to look at debt service expenditure in relation to government revenue.”

He further gave a breakdown of the relationship.

According to Dwight Mensah “between 2013 and the projected figures for 2019, debt service expenditure is increasing from about 27% of total revenue and grants to about 51.2%. Debt service expenditure includes interest payment and what they call amortization; paying down of the portion of the principal on our foreign debt”

“The combination of the two as a proposition of our total revenue and grant will hit more than 50% in 2019 which will close to double the 2013 ratio. So in spite of the fall in the debt to GDP ratio on account of the re-basing the burden of debt service spending on the government finances remains high and is actually on course to go up; and we think that is the pointer to the need to limit borrowing; it is more important as an indicator than the debt to GDP sustainability ratio.”