Government Misusing The Facility Of Debt – CPP

With the NDC Government resorting to a third Eurobond in as many years several questions arise on government debt policy.

Certainly the 10.75% interest is astronomical and the highest on the continent, with some rates on the continent as low as 3%.

The much touted over subscription far from being a measure of investor confidence in our economy is rather indicative of Government desperation with its generous rate of return to foreign investors.

Sources of funds for government intervention in economic development are typically tax revenue and debt – the last resort to address deficits in government budgeting.

Structural deficits is indicative of the need for structural reform of the economy and that requires government intervention in strategic productive sectors using debt finance. So the question is whether government utilization of debt is aimed at structural reform that deals with the deficits.

Loans and debt in our development history reveals a tale of government policy riddled with corruption.

The NDC Government has not been transparent with the use of funds from what has become an annual raising of funds through a Eurobond.

We believe that Government must set out clearly how monies raised from these bonds will be used and how they will be paid back. This can be done and must be done because as the CPP Government had shown very clearly on its funding of the Akosombo Dam for example and the payback of the loan which was paid back on due date.

The government is demonstrating once again its inability to manage Ghana’s economy by opting for the highest Eurobond rates in the history of this nation.

The issuing of a Eurobond on the back of an IMF bailout programme is also further indication that government indeed has no economic strategy to turn around thefortunes of Ghana for the good of the people.

Ghana’s high debt level of about GHC 94.5 billion is unsustainable and very worrying for this generation and future generations particularly as it is not geared towards productive use and the lack of effort by past and present governments to reduce the debt level is increasingly very disturbing.

After raising $750 million in 2007, successive governments have resorted to the international capital market and Eurobonds which is supposed to offer advantages of cheaper borrowing but it has been far from that.

Huge external borrowing is supplemented by huge internal borrowing with Government of Ghana Treasury Bills offering about 25.3%. This is because of government’s unmanaged, unchecked and unyielding appetite for borrowing on the domestic market also.

Many view the borrowing as going to pay cronies and as noted by the Finance Minister $500 million of this particular debt will be to retire other maturing debt, so called “Liability Management”.

Using borrowed funds at a coupon rate of 10.75% to pay maturing debts is not only the laziest way to manage an economy that has numerous resources but the most wasteful. Higher rates to pay debts that were incurred at lower rates is bad economic management and does not make economic sense.

This cycle can only be halted with a CPP government that believes in industrialization and lessons must be learnt from the CPP on its policies with the following considerations:

• Debt must be contracted to a large extent for asset acquisition.
• The asset acquired should demonstrate a repayment capability from its utilization

and cash flow.

• Debt should be utilized strictly for the purpose for which it was contracted.
• Domestic debt in local currency should be preferred to foreign debt with foreign

exchange obligations.

• Bridge loans as in the request of the CPP government of the first republic to the

IMF should be asset backed.

Such policies will help Ghana stabilize the Cedi while stimulating growth on the micro

and macro-economic fronts.

Overall, the current development policy recommendations of World Bank, IMF and WTO such as fiscal austerity, trade and financial liberalization and privatization are all

deceptive, hypocritical and must be rejected.

Nii Armah Akomfrah

General Secretary

www.conventionpeoplesparty.org