Rising debt sends gitters

Finance Minister Kwabena Dufuor

Total public debt rose in the third quarter, signalling that government borrowing is approaching the limit set for the national budget.

Total public debt stock at the end of July 2009 rose to US$8.12billion, equivalent to 54.9 percent of gross domestic product (GDP) - up from US$7.92 billion, equivalent to 54.6 percent of GDP at the end of December 2008.

However, the budget ceiling of 60 percent of GDP puts government in a tight corner with regard to borrowing to execute programmes lined up for the rest of the year.

Should ongoing talks between government and China yield the expected fruits of US$2.0 billion being sought for development projects, the public debt ratio will balloon to over 60 per cent.

Domestic borrowing was government's main resort for financing cash gaps in the third quarter. For the first eight months of the year, overall government budget operations resulted in a cash deficit (including grants) of GH¢901.55million, the equivalent of 4.17 percent of GDP, which was financed mostly on the domestic money market.

The stock of domestic debt of GH¢4.8 billion (27.2 percent of GDP), at the end of 2008, increased to GH¢5.48 billion (25.4 percent of GDP) at the end of July 2009.

The external component of the public debt also increased from US$3.98 billion (28.1 percent of GDP) at the end of December 2008 to US$4.47 billion, the equivalent of 30.2 percent of GDP.

Indications are that the public debt is piling up because of challenges faced with meeting revenue targets set in the budget.

Last week's report Monetary Policy Committee (MPC) from the Bank of Ghana on the review of the economy showed that revenue growth was somewhat robust, but the collections, represented just 78.6 percent of the projection for end-September 2009.

Donor disbursement for the period was also short by 50 percent of projection, leading to the shortfall in projected budget resource envelope.

"Partly because of this shortfall, there are some outstanding payments including statutory payments to DACF and GETFUND which will need to be settled later in the year," the review report said.

Total revenue and grants at the end of August 2009 was GH¢3.7 billion (17.1 per cent of GDP) compared with GH¢3.0 billion (18.5 per cent of GDP) for 2008.

In year-on-year terms, total revenue and grants increased by 22.6 per cent, compared with 9.7 pre cent recorded in 2008.