Government’s indebtedness to State-Owned Enterprises (SOEs) in the power sector, who in turn owe banks, poses a real and present danger to the economy and must be tackled immediately, Dr Eric Osei-Assibey of the Department of Economics, University of Ghana, has said.

The situation, he said, could put the future of both the SOEs and banks, as well the entire economy in a dingy position, because of the damage it causes to the bottom line of these companies.

“Government’s inability to retire debts owned state-owned enterprises who have also borrowed from commercial banks is one of the main reasons the banking sector is recording very high non-performing loans,” Dr. Osei-Assibey told the B&FT on the sidelines of an economic roundtable discussion organised by the Institute of Economic Affairs (IEA) in Accra.

Currently, there are about 36 state-owned enterprises in the country spanning trade and industry; engineering services; media and arts; the energy sector; transport; agriculture; and water and housing.

The borrowings of the four firms- Volta River Authority, Electricity Company of Ghana GRIDCo and Tema Oil Refinery- was GH¢19 billion at the end of last year, triggering concerns of systemic crisis in the face of the debt linkages between the state-owned companies and banks.

Although government has come up with some arrangements to defray the debts, such as a bid to convert some of the debts into bonds, Dr. Osei-Assibey said: “the situation is very dull and if care is not taken it can lead to the collapse of many of these state owned enterprises and the banks as well.”

In August, this year, the government announced that it had brokered a deal with local banks for a flexible settlement plan for debts accrued by SOEs, as part efforts to prevent the banking sector from collapse.

However, Dr. Osei-Assibey noted that it was high time state owned enterprises also pursued prudent and tested business models, which will make it hard for them to yield to political influence.

“Pertaining to management of some of these state owned enterprises, I think sometimes there is too much political games played with them, letting them to compromise and not really pursue prudent commercial management of corporate governance systems.

There is too much government interference and I think that we have to put some of these companies on business models to allow for effective management to make them profitable. This is key in reducing the government’s interference and some of the things that government do with some of the state owned enterprises,” he stated.

One of the key demands on government as far the as the three-year extended credit facility deal with the IMF is concerned, is for the energy sector debts to be managed.

The Fund programme was crafted with a raft of initiatives to reduce quasi-fiscal losses and improve the financial position of energy sector SOEs.

Themed ‘The most pressing economic issue facing Ghana’ the IEA event brought together players from a variety of sectors to discuss some of the critical economic challenges facing the country, and how they could be resolved.