Don’t blame the previous government for the high debt burden – Gatsi

Business news for Wednesday, November 4, 2020

Source: 3 News

2020-11-04

Professor John Gatsi, Dean of the University of Cape Coast (UCC) School of Business has called on the current government not to blame the previous administration for the current high debt burden.

He explained that the nature of Ghana’s debts is such that some instruments have a maturity period of 3 to 30 years, which means that interest will be paid or will be paid on loans over the years, since the payment of the principal is made only upon maturity of a specific debt contract.

Therefore, it is false to say that the high debt of the PNP government is due to the fact that loans were taken to pay the debt of the NDC.

“What is quite certain is that debts of shorter duration, say 3 years, incurred in 2015 should have been paid in full by now, just when the NDC established the sinking fund to pay off debts that are due during the loan regime. the nuclear power plant, especially the $ 750 million Eurobond issued by the then nuclear power plant government in 2007 and paid off in full in April 2017.

“From the above, it should be clear that current governments will always pay part of the debt acquired by previous governments, including the interest service on previous debts. All of these obligations should inform a government’s debt management strategy. No government, even if it serves two terms, can claim to have paid only the debts acquired by previous governments.

“That would be an uninformed position to propagate. Between 2009 and 2016, the NDC could not have finished paying off all the debt obligations that crystallized in the era of President Kufour or Rawlings, although the Mahama administration was smart and farsighted in establishing the sinking fund to pay. the 2007 Eurobonds, ”he said. it said in a statement.

Below is his full statement:

Do not blame the previous government for today’s high debt burden – Prof. John Gatsi

For governments, debts (bonds or long-term loans) are normally acquired to invest in strategic national assets, therefore high debt should normally mean high investment in roads, hospital and school infrastructure, railways, ICT infrastructure , among others, to create economic opportunities for citizens. .

However, debt becomes a burden when it is acquired and used for consumer spending rather than investment. In the years 2015-2016, Ghana’s high indebtedness situation was hotly debated, but economy managers later pointed to as many identifiable projects at various levels of execution with some completed in sectors such as energy, education, roads and railways, health, aviation. , ports and transport, and ICT sectors before the 2016 elections. The same demonstration is needed today, as we are on the threshold of the 2020 elections.

The nature of Ghana’s debts is such that some instruments have a maturity period of 3 to 30 years, which means that interest will be paid or paid on loans over the years, as the principal payment is made. performed only upon maturity of a specific debt contract. Therefore, it is false to say that the high debt of the PNP government is due to the fact that loans were taken to pay the debt of the NDC. What is quite certain is that debts of shorter duration, say 3 years, incurred in 2015 should have been paid in full by now, just when the NDC established the sinking fund to pay off debts that are due during the regime of the nuclear power plant, especially the $ 750 million Eurobond issued. by the then government of the nuclear power plant in 2007 and was fully amortized in April 2017.

From the above, it should be clear that current governments will always pay part of the debt acquired by previous governments, including the interest service on previous debts. All of these obligations should inform a government’s debt management strategy.

No government, even if it serves two terms, can claim to have paid only the debts acquired by previous governments. That would be an uninformed position to propagate. Between 2009 and 2016, the NDC could not have finished paying off all the debt obligations that crystallized in the era of President Kufour or Rawlings, although the Mahama administration was smart and farsighted to have established the sinking fund for pay the 2007 Eurobond.

Another debt structure is the ongoing repayment of interest. Ghana’s lower middle income status means that more than 80% of our debt is now commercial with a high bond weight. The bonds are structured to pay coupons (interest) quarterly, semi-annually and annually. This means that, given the annual coupon rates, the PNP government has started to pay interest on all bonds issued in 2017, 2018 and 2019.

Therefore, with a high level of bond debt, the government of the nuclear power plant is paying a high cost of interest. Again, it is wrong to think that the NPP borrowed roughly four times more than the NDC in less than 4 years due to debt-aligned repayment obligations of the NDC era. Therefore, the high-risk over-indebtedness status has nothing to do with the debts of the NDC era but with the income challenges.

Realistically, debt repayment should come from the income generated by investing the debts. The inability of governments to finance development projects ultimately leads to the phenomenon of borrowing to pay interest, especially in the case of old loans.

NDC must continue to account for its debts through its projects and the NPP must do the same as the NDC did in 2016 and is doing today.

The current high level of debt is the result of the government’s debt management guidance and the percentage of debt that is not even documented cannot change the narrative on Ghana’s disturbing debt development. A 100% simple arithmetic of 20 billion is 20 billion and 50% of 100 billion is 50 billion.

Although those who mention the percentage of borrowings cannot mention the percentage of borrowing by NPP, it is clear that a small percentage on a large number gives a large number and a large percentage on a small number gives a small number. Therefore, NPP has no hiding place. Last week it was Covid-19 and this week it is a percentage of the loan. Project debt accounting is all Ghanaians want, especially when the free SHS is funded by oil money and not debt.