Improvement Economist and Head of Analysis on the Danquah Institute, Dr. Frank Bannor, has challenged the frequent narrative that lowering authorities expenditure is the answer to Ghana’s longstanding debt downside, calling it a flawed argument that fails to contemplate the realities of the nation’s financial construction.
Talking in an interview on France24 information, Dr. Bannor offered an in-depth evaluation of Ghana’s price range, emphasizing that wages, salaries (public sector), and curiosity funds type the majority of presidency spending.
“Let me contact on our financial state of affairs. One of many longstanding challenges for Ghana has been the difficulty of debt. Repeatedly, we hear requires the federal government to cut back expenditure to deal with the debt. As an economist, I discover that argument flawed.”
The Economist additional highlighted that the second-largest expenditure is the fee of curiosity on the nation’s debt. “Curiosity funds are untouchable,” he said, explaining that when the federal government commits to borrowing, it should honor its debt obligations. “We can’t escape this accountability with out damaging our credibility.”
He identified that within the November 2023 price range introduced to Parliament and the mid-year price range evaluation, the biggest authorities expenditure was on wages and salaries, primarily for public sector employees. With the federal government being the biggest employer in Ghana, this expenditure has ballooned through the years.
“When individuals recommend chopping authorities spending, are they implying we should always lay off employees or scale back their salaries? That may’t be the answer,” Dr. Bannor argued. He famous that in 2024 alone, public sector wages elevated by about 20%, bringing the overall wage invoice to virtually over 66 billion cedis. He talked about that the federal government just lately recruited an extra 15,000 well being professionals, additional including to the wage burden.
The Economist additional highlighted that the second-largest expenditure is the fee of curiosity on the nation’s debt. “Curiosity funds are untouchable,” he said, explaining that when the federal government commits to borrowing, it should honor its debt obligations. “We can’t escape this accountability with out damaging our credibility.”
Dr. Bannor additionally drew consideration to the structural subject in Ghana’s economic system, the place the non-public sector performs a a lot smaller position in employment in comparison with different nations. “Not like different economies the place the non-public sector drives job creation, the federal government in Ghana stays the biggest employer. This naturally will increase public expenditure,” he defined.
He said that whereas authorities spending had risen steadily, income technology, particularly by taxation, had didn’t maintain tempo. “Our tax income as a share of GDP is barely about 15%, far beneath the Sub-Saharan African common of 20-21%. This hole between rising expenditure and stagnant income is what creates the fiscal deficit,” he stated.
Dr. Bannor defined that to finance this deficit, the federal government is left with two major choices: borrowing domestically or externally. He warned that borrowing domestically poses its personal challenges, because it limits the quantity of capital accessible for personal funding, resulting in the crowding out of personal sector progress. He confused that, this, in flip, stifles financial growth.
Borrowing
Dr. Bannor stated that exterior borrowing—whether or not by industrial, concessionary, or bilateral loans—has develop into a obligatory evil for a lot of governments coping with persistent fiscal challenges. He cited Ghana’s historical past of fiscal imbalances, noting that the nation recorded its first fiscal deficit in 1959, simply two years after gaining independence. Since then, Ghana has struggled to handle its debt and restore fiscal steadiness.
“The explanation why many governments resort to borrowing externally is due to these persistent fiscal challenges,” he stated. “Ghana’s historical past is marked by a sample of borrowing and financial imbalance, and this has been a central subject since independence.”
Dr. Bannor emphasised that whereas Ghana’s financial challenges are vital, the answer lies in a shift in how the nation approaches growth, income technology, and financial accountability. “We have to rethink our methods. Addressing these challenges would require extra than simply chopping expenditure—it calls for a complete and forward-thinking ato financial administration,” he added.