A fiscal policy think tank, the Institute for Fiscal Studies (IFS) has urged the government to open negotiations with the country’s creditors for new and better debt repayment terms to avert an impending default.
The institute said its analysis showed the country lacked international reserves and generally sufficient revenue to meet its debt obligations and interest charges, hence the need for a restructured deal with lenders.
He said a successful debt restructuring exercise could help minimize short-term debt servicing expenses and give the government some breathing room to pursue long-term policies aimed at improving the fiscal situation.
The IFS noted that debt restructuring was one of the bold and tough decisions urgently needed to protect the economy from further deterioration.
The head of research at IFS, Dr Said Boakye, told a forum in Accra on Tuesday that the country’s government and political leaders also needed to show leadership in reducing waste and other spending. while being honest and collaborative in the face of challenges.
Dr Boakye also called for efforts to reduce the public sector wage bill, reduce borrowing and step up the fight against corruption.
The economics researcher was giving a presentation on the country’s economic and fiscal situation on behalf of the IFS, which had been at the forefront of calling for tougher fiscal consolidation measures since 2019.
Titled: “IFS Assessment of the Government of Ghana’s Fiscal Consolidation Efforts in the Face of the Rapidly Deteriorating Macroeconomic Environment”, the presentation traced the causes of the current economic challenges and concluded with recommendations.
The main reasons
Dr. Boakye said in his presentation that the current macroeconomic instability is a result of the country’s fiscal situation being in a very poor state compared to its peers.
He said the IFS analysis found the challenge stemmed from the economy being “suffocated by the excessive cost of servicing debt, due to the large build-up of debt over the past decade, and very high employee compensation, largely due to the power of the public sector”. labor unions to lobby for wage increases.
“In fact, relative to its peers, Ghana has been spending too much to service its debt and pay employee allowances since at least 2019.
Using data from 107 countries from the World Bank, the economist said that in 2019, Ghana’s interest payments (excluding depreciation) and employee compensation as ratios of total revenue and subsidies were much higher to the averages of peer and non-peer country groups.
He said that in 2019, when Ghana spent up to 78.7% of total revenue and subsidies to pay both debt interest and employee compensation, the averages for the 27 African countries and the 56 middle-income countries in the sample were only 44.6%. and 39%, respectively.
He said that in 2019, Ghana was the only third country to spend more of its income on these two items in the world.
To address these challenges and create respite for the economy, Dr Boakye said debt restructuring was urgently needed.
“The government should follow Zambia’s example and renegotiate debt restructuring with its creditors.
“If successful, this can help minimize debt servicing expenditures, at least in the short term, and give the government some breathing room while it pursues long-term policies to improve the fiscal situation.
On the bulky payroll, the economist advised the government to “face this challenge head-on and reduce the compensation bill as a ratio of total revenue and subsidies to match the average of peers in the country. “
“This can be done by ensuring that the growth rate of the compensation bill falls below the growth rate of total revenue and subsidies over a period of time, which will naturally lead to a gradual reduction in the ratio of the compensation bill. compensation bill on total receipts and grants.
“Through a consultative process with public sector workers and other stakeholders, this reduced ratio should be set as a ceiling, beyond which Ghana’s compensation bill ratio cannot increase,” said he declared.