Gov’t’s methodology in refinancing debt problematic – IFS

Government is trapping itself in a vicious circle of rising public debt issue because all its borrowings from foreign sources attract high interest rates that leads to an increase in the cost of refinancing, Executive Director of the Institute for Fiscal Studies (IFS), Prof. Newman Kusi has said.

He says this comes at a price, since the trend will only allow for a longer-duration of its debt stock, and will not be able to “retire its debt in a meaningful period”.

Prof. Newman indicated that the public debt which stood at GH¢94.5billion as at June is rising at an astronomical rate –having already crossed the debt-GDP sustainability threshold of 70 percent — posing serious barriers to economic growth.

“Unless such credits are used to finance projects that can generate funds within a reasonable time period to pay off the debt, government will forever be paying debt. Besides, what is  disturbing is that the money that we borrow to refinance the existing debt, we borrow it at a high cost, which means we’ll have to raise more to settle for the external and internal debt” Prof Newman told Fiifi Banson on Anopa Kasapa on Kasapa 102.3 FM Monday.

The IFS says government will have to cough up as much as US$21.2billion in the next five years to settle its domestic and external debts, as well as 8.5 billion dollars to service debts in 2015, without any assumption of roll- overs and refinancing.

It noted that the high level of debt, interest costs and continued borrowing may have serious negative impacts on the country’s sovereign credit rating, insisting that it will be extremely difficult for managers of the economy to grow the economy with a high composition of debt hanging on its neck.