Economist Professor Godfred Bokpin has warned that Ghana risks repeating the mistakes that followed the country’s debt relief under the Heavily Indebted Poor Countries (HIPC) programme if the government fails to properly manage the fiscal space created by recent debt restructuring and expenditure controls.
He said Ghana was now almost at the same stage it reached in 2006, when the country had completed the HIPC programme and benefited from significant debt relief.
Speaking in an interview on Monday, August 24, Professor Bokpin said the current improvement in Ghana’s debt position should be treated as an opportunity to build a stronger and more sustainable economy, rather than as a justification for increased spending and borrowing.
“This is not the first time. Ghana is almost at the same stage where we were in 2006 when we had finished HIPC,” he said.
Professor Bokpin explained that Ghana completed the HIPC programme in 2004 and the Multilateral Debt Relief Initiative in 2006, after which the country’s debt-to-GDP ratio fell to below 30 per cent.
The debt relief also significantly reduced debt-servicing pressures, giving the government greater fiscal space to finance economic activities.
According to Professor Bokpin, the improved fiscal position was one of the reasons Ghana sought to move away from its dependence on the International Monetary Fund (IMF) under former President John Agyekum Kufuor.
“In fact, it was a reason why Ghana filed for divorce from the IMF under President Kufuor in 2006. That we could be on our own,” he said.
He said the country believed it had sufficient fiscal room to finance growth and access international capital markets.
“We have fiscal space. We could inject growth to external debt financing by going to the international capital market. So we filed for that divorce,” he said.
The IMF subsequently approved the arrangement, paving the way for Ghana to return to the international capital market and issue its first Eurobond in 2007.
“It wasn’t so difficult. The IMF granted the divorce, which also allowed us to do our first Eurobond in 2007. So we did all of that,” he said.
‘Within three years, the fiscal space was dissipated’
Professor Bokpin said the fiscal space created by the HIPC-related debt relief was not sustained, warning that Ghana could repeat the same pattern if the current gains are not managed prudently.
“But remember what happens. Within three years, the fiscal space we are celebrating today, we celebrated that also in 2006. Within three years, the fiscal space has been dissipated,” he said.
Ghana eventually returned to the IMF in 2009 after its fiscal position deteriorated.
“Ghana made a U-turn in 2009, asked for the hand of the IMF in another marriage. Within three years, we made a quick U-turn,” Professor Bokpin said.
He urged the government to use the current fiscal improvement to strengthen economic management systems and prevent another cycle of excessive borrowing and debt accumulation.
“So it’s good news we are celebrating this fiscal space. Let’s put in place the right structures, spend efficiently, borrow prudently, invest in enhancing the cash flow generating capacity of the economy,” he said.
Professor Bokpin stressed that the lessons from the post-HIPC period should guide current economic policy.
“Otherwise, we have been there before.”
