Partner at accounting and auditing firm, Deloitte, Yaw Lartey is expressing worry about the country’s debt profile, which is tilting towards commercial loans.
Commercial loans usually comes at a higher interest cost than bilateral facilities, which appears in concessionary terms at a longer repayment period.
Speaking on Business Live on Joy News, Mr. Lartey cautioned managers of the economy to be careful about the rising debt levels which could create problems for the country, going forward.
“A key cause for concern like debt profiling over the last few years is shifting towards commercial facilities and also reducing reliance on bilateral and multilateral facilities. Today, a Eurobond can be done for 10 to 15 years at 9% unlike previously, where you could have bilateral and multilateral facilities from places like the Korean Exim Bank for 1% and 3% for 30 years.”
“Our interest commitment alone makes a significant component of the country’s total expenditure compared to compensation. Historically, compensation was number one, but currently, the interest payment has displaced compensation and that is another key cause for concern. Our debt profiling is shifting towards more expensive debts and moving away from cheaper sources of financing”, he expressed fear.
Vice President, Dr. Bawumia at a recent meeting said the country’s rising debt level is not a cause for concern because the economy has been prudently managed. This is because the exchange rate depreciation and interest rates remain low, whilst the country’s gross international reserves has escalated to about $10 billion.
However, others believe the implication of the rising debt levels will be detrimental to the Ghanaian economy.
The Deloitte Partner said “last year, the government of Ghana, during the budget statement mentioned the financial sector clean-up, Covid-19 and capacity charges [energy debt] as three key factors that caused the debt situation in the country. Our debt levels rose from ¢122 billion in 2016 to ¢296 billion in 2020, so these three factors made up about ¢50 or ¢60 billion with an excess of about ¢116 billion. So the question is, what caused these debts to rise, since we are in a situation where we are borrowing to pay off previous debts and also in a situation where adding on to previous debts.”
“So there are instances where the three factors cannot explain these debts”, he added.
He also expressed worry about the application of the extra ¢117 billion debt borrowed by this government, which he described as “unknown”.
“The story behind the ¢117 billion excess or additional debts from 2016 to date stands unknown, while the utilisation of those monies borrowed increased the value of the country’s Gross Domestic Product which should have led to the reduction of the day to day ratio of the country’s GDP. This means the rate at which the debts are increasing counters the rate at which the GDP is increasing and this is a great concern.”
On the issuance of the Sustainable Bond, Mr. Lartey said it is a step in the right direction “but we should go for sustainable bonds that come at consensual rates”.
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