Dependence on commodities makes Ghana’s economy vulnerable

Dignitaries and participants in a group photograph
Dignitaries and participants in a group photograph

Ghana’s dependence on commodities is a major vulnerability for the Ghanaian economy and contributor to the current debt issues, Mr Benard Anaba, a Policy Analyst, has said.

He noted that beside obvious structural rigidities in developing countries, a combination of the fall in export values (commodity prices) and loans not well used to ensure appropriate economic growth had been the major issue.

Mr Anaba said this in a study finding in Accra at a roundtable organised by the Economic Governance Platform (EGP) with support from OXFAM in Ghana on the theme, “Ghana’s Debt Sustainability Assessment Focusing on Trends in the recent Evolution of Debt Indicators and present Policy Options at the National Level.”

Mr Anaba said a country’s Gross Domestic Product (GDP) was an indicator of its capacity to generate resources to service its debts, and its debt-to-GDP indicator formed a key ingredient for assessing that purpose.

He said at current levels of growth, Ghana must increase its annual GDP growth by about 3.4 per cent annually to be able to return to debt sustainability.

“Currently, with a measured sustainability index of 3.5 per cent, Ghana requires to grow the economy at about 3.5 per cent over the current levels of projected 4.5 per cent growth to be able to return to debt sustainability,” he stated.

“If we increase growth by one per cent annually of current levels of growth, it will take the country at least three years of consistent GDP growth above 5.5 per cent and at current level of Ghana’s debt, to return to debt sustainability.”

Mr Anaba said Ghana had the potential beyond current levels and that a rapid growth could be leveraged with reduced corruption and an efficient production system, which the Government’s digitalisation agenda was premised on, but had not lived up to expectation.

“Particularly for debt sustainability, a lower debt service-to-revenues ratio can be the path to lowering interest rates over the medium to long term and progressively to lowering the cost of debt if revenue mobilisation can be enhanced,” he said.

The Policy Analyst said Ghana had the potential to raise about five per cent more of tax revenue-to-GDP ratio but that had continuously been hampered by the structural inefficiencies in the economy, which the International Monetary Fund (IMF) and the World Bank had regularly reiterated.

He said debt sustainability as defined by the IMF and the World Bank under the Debt Sustainability Framework (DSF) Debt Sustainability Analysis (DSA) was mostly a forward-looking measure and that the objective was to ensure that countries were solvent and able to service their debt irrespective of the impact on the citizens.

He said for Ghana, the increasing resort to domestic financing as a means of debt diversification might have its advantages and without the problem associated with debt resolutions, but where the Government was the cause of debt default, the ramifications to the economy could be huge compared to external debt default.

He said the COVID-19 pandemic impact was widespread and that the impact was felt by Government, the private sector and households; saying in terms of Government debt, the impact could be felt in the Government escalated expenditures that affected the public debt profile.

Mr Anaba noted that the Government recorded extra COVID-19 driven expenditures, an equivalent of about 8.8 per cent of GDP.

Mr Felix Ankrah, Programme Coordinator, EGP, said the rationale for the study was to assess Ghana’s debt sustainability, focusing on trends in the recent evolution of debt indicators and present policy options at the national level.

Dr Vera Fiador, Senior Lecturer, University of Ghana Business School, and Chief Executive Officer of Madeolo Consult, who chaired the function, said to understand the nation’s debt situation, Ghanaians needed to know the “factors on the ground.”

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