THE Centre for Policy Analysis (CEPA), a policy analysis think tank has called on managers of the country’s economy to, as a matter of urgency, fashion out a “debt policy” that will help deal with the country’s mounting debt problems.
The Centre was of the view that the country’s debt issues had “reached such a time when it must have a real debt policy” that would among other things spell out the various mechanisms to be used in handling the nation’s present rising debt.
Commenting on a range of the macroeconomic issues during the launch of the Centre’s special edition of its “Ghana Economic Review and Outlook 2009-2012” dubbed “The dawn of the oil era”, Executive Director of the centre, Dr Joseph Abbey, said the scattered nature of the country’s debt made their validation a problem to policy makers and the country at large.
“We must, before the end of this year, come up with the actual situation regarding the country’s public debt. To us at CEPA, Ghana must validate its debt so that if any contractor somewhere some day comes up with a debt issue, then we will be able to trace the source of that debt and specifically know what to do with that claim.”
Ghana’s total public debt as at September, 2009 was US$8,551.7 million but surged to US$11,247.7 million in September, 2010, representing a 32.1 per cent leap within the twelve month period.
But the government, through the Ministry of Finance and Economic Planning, last March released nearly GH¢600 million towards settling some of these arrears and that subsequently lowered the country’s public debt margin.
Dr Abbey, who had earlier this year called for the consolidation of the country’s domestic debts, said governments should also refrain from the habits of awarding projects without proper funding from its coffers.
“We should not also allow the creation of debts to the informal sector; if we want to embark on any project, then, let’s ask for the total cost of that project and provide the needed amount before the project actually takes off.”
To him, the practise whereby past and present governments awarded development projects without providing actual payment for those projects was helping to pile the country’s debt problems, a situation the CEPA Executive Director noted had dire consequences for the country’s financial sector and the economy at large.
He observed that such a practice had a greater tenderccy of increasing the already hiking Non-Performing Loans (NPLs) within the banks and thus discouraging the banks from lowering interest rates.
On the NPLs, Dr Abbey said the centre had “picked signals” that some banks under distress of these mounting bad loans sometimes negotiate with the enterprises that owe them “to re-finance some of these loans.
“What we have actually heard is that the bank involve offers the owing institution a new loan which actually includes the interest of the already bad loan that was given earlier,” Dr Abbey explained.
Should that be the case, the Executive Director intimated that the rate of the NPLs “may just be far more than what we currently know and we must also look at that.“
The rate of NPLs among the country’s commercial banks stretched from 14.9 per cent in 2009 to 20 per cent in 2010, partly prompting the banks to keep lending rates tight at 25 per cent across board despite the lowering of the policy rate by the BoG.
Dr Abbey therefore called on the “authorities concerned to find this out and if it indeed exists, they should stamp it out now.”
Forecasting on the economic outlook of the nation in the next two years, Dr Abbey said, “the CEPA projects an overall fiscal deficit of 5.1 per cent of GDP for both 2011 and 2012.”
A key assumption, he said, was that the planned comprehensive strategy to regularise the end-2012 stock of GH¢3.5billion of domestic payment arrears and public sector obligations in respect to SOE debts would be completed and put into operation before the close of 2011.
He thus added that the “so-called informal public debts would be a thing of the past and there would be no need for provisions to clear arrears and no new arrears would be countenanced.”
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