2022 budget has a strong debt management strategy – Amin Adam insists

The Member of Parliament for Karaga and Deputy Minister for Energy, Dr. Mohammed Amin Adam, has allayed the fears of Ghanaians regarding the Minority’s claim that the government has lost control of the debt situation in the country.

He observed that the reasons for the increase in the national debt were due to well-known factors arising from the recklessness of the NDC when the economy was under their control. These factors were the financial sector cleaning and the energy sector payments.

He explained that when the NPP took over the reins of government, the financial sector was in a state of turmoil.

The DKM crisis had just occurred in 2016 and following an Asset Quality Review exercise, 9 banks were found to be undercapitalized; and the toxic balance sheets of banks had contributed less credit to the private sector.

The government commenced a clean-up exercise in 2017 and this has resulted in a debt outlay of GHS 21.5 billion to protect depositors.

“Similarly, the energy sector liabilities had crystallized with a liability of almost US$ 1.0 billion per annum, with securitised amounts on the debt stock rocketing to about GHS 12.9 billion. We had to put in place an energy sector stability plan, which includes an additional US$ 1.0 billion of the 2020 Eurobond dedicated to refinance and renegotiate some IPPs to bring sanity to the sector.”

“Also, due to the effects of COVID-19, the size of the GDP did not grow, as growth was just about 0.9%. These factors led to an increase in the Debt-to-GDP from 61% in 2019 to 76% in 2020.”

In an interview with the media in Karaga after presenting 20 motorbikes to farmer groups, Dr. Amin assured that the government has put in place a strong debt management strategy to reduce the rate of debt accumulation.

He indicated that a critical look at the economic fundamentals of the 2022 budget gives a strong indication that the government is determined to control debt accumulation and manage the cost and risks of the country’s debts.

“The primary balance is an important indicator of debt accumulation. It is defined as government revenue less non-interest spending. It is a measure of the domestic fiscal effort of the government. When it is negative, it means increasing debt accumulation and the reverse is true. In 2020, the primary balance was negative 4.6% of GDP. In 2021, it was negative 2% of GDP.”

“In the 2022 Budget, the primary balance is projected to be a surplus of 0.1% of GDP indicating that the revenue measures provided by the Budget will generate more revenue, whilst expenditure is controlled.”

Dr. Amin Adam also added that the overall fiscal balance is a good indicator for the government in managing the country’s debt stock.

“Another good indicator is the overall fiscal balance. The economy recorded a fiscal deficit of 11% of GDP in 2020, which reduced to 7.7% of GDP in the first half of 2021; and is projected in the 2022 budget at 7.4% of GDP. The rate of inflation has also got implications for debt management. Lower inflation ensures that domestic long-term debts are stable. In the 2022 budget, the government will ensure that inflation is reduced from 11% by the end of October 2021 to a single digit of 8% by the end of December 2022.”

“It is also important to examine the effectiveness of the government’s debt liability management. Our very recent economic history shows that both the cost and risk of borrowing have seen significant improvements. For example, the weighted average interest rate has been stable over the last 4 years, whilst the Average Time-to-Maturity has increased from 9 years in 2016 to 15 years in 2021.”

He thus appealed to the good people of Ghana to continue to support the government as it transitions to recovery from the effects of COVID-19.

He was confident about the recovery, pointing out that the signs were positive as demonstrated by the GDP growth rate from 0.9% in 2020 to 3.5% by the first half of 2021, and its projection to 5.8% in 2022.

Story By: Ernest Arhinful | Citi FM

Leave a Reply

Your email address will not be published. Required fields are marked *