Ghana's total debt hits $12.91 billion and going

Ghana’s total debt has doubled in just two years under President JEA Mills. Documents made available to the New Statesman from policy think tank, Danquah Institute, indicate that Ghana’s total is $12.9 billion currently.

At the end of 2008, when the New Patriotic Party left office, Ghana’s domestic debt stood at GH¢4.8 billion (or $3.170bn in today’s exchange rate). At the end of 2010, under the National Democratic Congress, this had shot up to Ghc8.28bn ($5.47bn).

President J A Kufuor also left an external debt of $4bn. Today, Ghana’s external debt has gone up by 50% to $6.12bn. This does not even include the $1.5 billion controversial STX loan that was approved in August 2010. To add this pushes the external debt to as high as $7.62bn, taking the total national debt to nearly $14bn.

In addition, Cabinet has approved two major loans, $1.8bn from China to build the Eastern Corridor Road and a controversial 442 million Euros ($626.3m) from a husband and wife $5,000 clay-manufacturing firm in the Czech Republic.

This credit facility from Opus 7 is to construct 12 district hospitals at an exceptionally high unit cost of $40m and to procure 200 ambulances. There are currently 70 districts in the country without hospitals.

These astronomical loan figures come on top of Ghc4.19bn arrears that were carried over from last year to 2011, including arrears owed to GetFund, District Assembly Common Fund, and National Health Insurance Levy and other statutory funds, all totalling GH¢747.9m, payment owed to contractors of some GH¢2.42bn, plus projects arrears of GH¢1.28bn.

While some of this was settled in March, more payment vouchers have been issued this year, with concerns being raised over the integrity of government’s oft-touted macro-economic gains.

“It is by the far the biggest percentage and nominal increase in debt within such a short time under any government of the Republic,” says Nana Attobrah, head of research at DI.

Ghana’s total external debt stood at $6.15bn in 2000, representing 158.3% of GDP. With only $233.4m in gross reserves, Ghana needed $544.8m to service its external debt in 2000 alone. This reduced significantly to $194.9m in 2004 when Ghana reached HIPC completion point.

Total debt relief from all of Ghana’s creditors at the time amounted to $3.6bn, with the World Bank alone forgiving $1.45bn. This meant that for the next 20 years, $230m that would have gone out every year to service Ghana’s debts was saved and to be used to support government initiatives in reducing poverty and creating wealth.

With banks’ credit to the private sector falling significantly by 3% in this first quarter, according to figures released by the Bank of Ghana, there are fears that this public sector borrowing rush is crowding out the private sector.

Year-on-year growth of credit to the private sector grew significantly under President Kufuor by 60% in 2007 and 48% in 2008. However, by 2009 this dropped to 16%, recovering marginally to 19% in 2010 but dropping further at the first quarter of this year.

Again, the share of credit to the private sector from 1993-2000 (the first two terms of the NDC) averaged 7.2%, rising to 17.9% in the eight years of the NPP, ending 2008 at 27.7%.

According to the policy think tank, Di, contracting debts to accelerate Ghana’s development is not an idea anybody can quarrel with but it is the quality of the loans.

They cite the $1.5bn STX deal, which is alleged to be over-priced by more than $500m. The Opus 7 loan, which a due diligence report by Dunn & Bradstreet advises that the Czech company owned by an Austrian couple, which deals with annual business transactions of less than $10,000, have nowhere near the capacity to deal with a $626m credit facility and at a so-called concessionary rate.

There are increasing concerns over inflated sums of public contracts under President Mills. For example, the average cost for constructing a kilometer of road in Ghana, which was $450m under the NPP, has shot back up to $800m under the third term of the NDC.

It stood at $600m in 2000, when the NDC left office, but greater value for money evaluation by the NPP reduced it by $150m.

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