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Poverty levels to widen over excessive borrowing – IFS

The Institute for Fiscal Studies (IFS) is predicting of a huge distortion to the provision of major infrastructural projects in the country should government fail to tackle the rising public debt stock.

The IFS argues that the rising interest payment on the debt continues to drain financial resources allocated to the construction of critical infrastructure such as roads, railways and housing.

Over the last decade, Ghana’s interest payment on debts has increased from three hundred million (GH?393,400,000) to about fifteen billion cedis (¢14,900,000,000).

Addressing a forum on the implications of the rising debts on the economy, the Executive Director of the IFS, Professor Newman Kusi said that the development is also likely to deepen poverty levels if unresolved.

“…While in 2008, about 16 pesewas of each GH?1.0 tax collected by the government was used to pay interest on its debt; by 2017, the figure had increased to 42 pesewas due to the astronomical increase in the public debt stock over the period. This suggests that resources have been taken away from several critical sectors of the economy, with serious negative implications for growth and poverty reduction.”

Professor Newman Kusi also disclosed that presently, government spends forty-two percent of its revenue on interest payments.

A development he bemoans is draining resources earmarked for other purposes.

Meanwhile the IFS boss says the large share of Ghana’s foreign currency debt at non-concessional terms exposes the country’s debt dynamics to foreign exchange shocks therefore the need to relook at the situation.

“Since 2013, the value of the cedi against the dollar has fallen by more than 50%. Because the external debts are denominated in dollars and other foreign currencies, the cedi depreciation has in turn increased the relative size of the debt and debt payments. There is also a potential risk of future capital reversal should the exchange rate deteriorate and bring serious pressure on the country’s foreign reserves. The country is also likely to face continued high financing costs as its debt increases and global interest rates rises.”

Figures released by the Bank of Ghana show that Ghana’s total debt stock is estimated at 139 billion cedis, representing 68.7% of GDP.

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