Gov’t, IMF, Economists & Academia Leaves Ghanaians Confused Over Country’s HIPC Status

Dr. Albert Touna-Mama, IMF Resident Representative, Prof. Bokpin and Prof. John Gatsi Dr. Albert Touna-Mama, IMF Resident Representative, Prof. Bokpin and Prof. John Gatsi

Ghanaians, have been left confused by the Akufo-Addo government, the International Monetary Fund (IMF), Economists and Academia, over the country's debt status and whether or not, it has returned to the unenviable club of Highly Indebted Poor Countries (HIPC)which it exited about 16 years ago.

The IMF, has listed Ghana in the category of the HIPC nations on its website with a report projecting Ghana's debt to GDP which currently stands at 68.3percent, and will hit 76.7percent by the end of December 2020.

The classification has triggered reports on both social and mainstream mediathat increased borrowing and rising debt service cost had pushed Ghana back to HIPC status.

This has gotten experts, including Godfred Bokpin, an Economist and Professor of Finance at the University of Ghana Business School, insisting he is not surprised at the development.

Speaking on the development on the Morning Starr yesterday, Professor Bokpin, said if the government continues to borrow and spend at the current rate, the economy will feel the negative impact after the elections.

"I am not surprised that we are back to HIPC. It can be understood and it can be explained. Currently, Ghana is spending 46% of its tax revenue generated in servicing its debt and it's one of the highest in Africa. We'll see the real effects of this after the election."

Professor Bokpin added "every cedi we generate, 46% goes to debt payment. The rest goes into paying wages and salaries."

But the IMF's Resident Representative to Ghana, Dr. Albert Touna-Mama, explained that Ghana has not been re-admitted into the debt club, insisting that the recent update of Ghana's debt-to-GDP ratio has not triggered any decision or action by the IMF, leaving Ghanaians more confused.

Speaking to Graphic Online's Maxwell Akalaare Adombila, the IMF Resident Rep, said recent publications that Ghana had been added to a list of HIPC countries was false, flawed and misleading.

He, however, added "We reserve the right to issue a public statement to make such clarifications as needed".

Ghana's public debt stock in June this year, hit GH¢255,727.1 million (US$45,486.1 million), according to Finance Minister, Ken Ofori-Atta during his 2020 mid-year budget review on Thursday, 23 July 2020.

"Mr Speaker, consistent with the front-loading of the government's fiscal operations, the financing needs of the government were also front-loaded. As earlier stated, the COVID-19 pandemic has resulted in the tightening of global financial conditions. Fortunately, our US$3 billion International Capital Market financing was conducted in the first 2 months of the year. Also, the IMF's US$1 billion rapid credit facility was also executed in April 2020", he reported to the house.

However, Dr Saeed Boakye of the Institute of Fiscal Studies, who also spoke on the subject on the same platform as Professor Bokpin, said that "it's showing that the country has digressed when it comes to managing its affairs. You can't keep borrowing and expect that everything will be fine."

Another academic, the Dean of the Business School at the University of Cape Coast (UCC) Professor John Gatsi, dismissed comments by the Finance Minister, suggesting that the projections made by the IMF regarding Ghana's debt are merely statistical.

Ken Ofori-Atta, had in an exclusive interview with TV3 on Monday, October 26, said that the Akufo-Addo government was not too concerned about the debt, because attention was focused on spending the funds to protect Ghanaians against the outbreak of the coronavirus pandemic, adding the lives of the people, he said matter to the government than debt.

He added, the government spent huge sums of money during the cleanup exercise in the banking sector which resulted in the collapsed of nine domestic banks.

Mr Ofori Atta, said "The IMF is expecting developed countries to have 125% debt to GDP ratio. Countries like ours is doing about 65%.

"When you discount what was spent on the financial service and on the energy sector, that brings it back. I guess the question for any nation at this pandemic time is, what you put forward first.

"The lives of the people who then become productive or you stick to some statistical numbers as an issue from stopping you from saving lives. I think we have chosen the latter."

But in a statement reacting to this development titled "High Debt -to- GDP cannot be mere statistics: Ghana is HIPC without debt relief and debt forgiveness" Professor Gatsi said "In an election year, flagbearers of political parties should be interested in the debt level, the obligatory interest payments and lower public investment expenditure.

"The reason for the above statement is because winning the December 7, elections means one's readiness to shoulder a debt burden that needs strategic deployment of policies to reduce the debt to sustainable levels while investing in growth-enhancing policies and projects.

"Those who create the impression that high debt is a mere statistics are admitting the failure of the debt management strategy they embraced. High debt, high-interest payments and low revenue mobilization in the era of job losses is not mere statistics."

He further stated "The burden of debt is seen in how much interest is being paid and how the interest cost is affecting investment in socio-economic infrastructure. It also reflects on how much buffer the economy is putting up such as contingency fund, sinking funds and other financial savings to protect the economy. We have failed in all these areas. Referencing the high debt levels of Japan, France and other major economies is no more reasonable because they are in a different class with robust export revenue to GDP, high tax revenue to GDP, well-planned interest payments and good public investment culture.

"Per the IMF's more than 76% debt -to-GDP ratio with lower tax to GDP and rapid piling up of arrears with a reduced rate of access to water due to low investment and all year round pollution of water bodies, Ghana has thus been categorized as a HIPC country. The only difference now is that there will not be any debt forgiveness and debt relief with conditions to invest in programs to reduce poverty. The first time HIPC was introduced, it was a package meant to support highly indebted poor countries experiencing acute poverty, social exclusion and generally poor and abandonment of infrastructure programs. It, therefore, came with support and benefits structured by the IMF& World bank.

"In 2016 when the debt level was discussed pointing to HIPC, the World Bank praised the poverty-reducing efforts by the government but the discussion did not change. Today, we are discussing the high debt level and HIPC with the recollection of so many job losses from the banking and financial and small scale mining sectors.

"Interestingly, the debt level and HIPC were discussed extensively in 2016, when the investments in the energy sector ended the dumsor.

Today, we want to pretend it all about Covid-19. At the end of 2019 and in March 2020, the IMF, signaled the fiscal situation, including the debt and interest payment burden on Ghana, even with published data with the Ghanaian authorities being the source, government officials still denied. Can you hide debt?

In his email, the IMF Resident Representative said: "We have been made aware of (social) media reports stating that Ghana has recently been added to the list of HIPC by the IMF."

"The HIPC Initiative is essentially closed for countries that have already reached the Completion Point," Dr Touna-Mama, said recalling that the country successfully reached the Completion Point of the programme, introduced in 1996, in July 2004 and was, therefore ineligible for readmission into it.He, however, stressed that the list of countries that have qualified to the HIPC Initiative since its inception was "regularly updated on the fund's website and must not be interpreted as a new 'HIPC list.'

"Any such interpretation is flawed and may be deceptive," he said.

He added that the recent update of Ghana's debt-to-gross domestic product (GDP) ratio has not triggered any decision or action by the IMF.

He referred the general public to the latest edition of fund's Regional Economic Outlook (REO) for sub Saharan Africa, which he said contained information on the country.

Dr Touna Mama thus encouraged the public to "seek clarification before giving credence to rumour involving the IMF in Ghana."Meanwhile, the Minister of Information, Kojo Oppong Nkrumah, has refuted the report, saying government has not apply to the IMF or the World Bank to be listed onto HIPC programme and urged the public to disregard such false reports.Mr Oppong Nkrumah, responded to the allegations at the fifth edition of the Nation Building Updates in Accra, saying such viral fake news reports were part of a broad and deliberate strategy by some persons to deceive the public ahead of the December 7 polls.

He noted that currently, there was no ongoing HIPC programme under implementation by the IMF or World Bank.

"We (government) categorically say that it is not true that Ghana has been declared HIPC or have been added to a list of HIPC countries. The highly indebted poor countries initiative or the HIPC Initiative was a particular programme that was rolled out by international organisations like the World Bank, the IMF and the Donor partners in 2001.

"It was a programme limited to a particular point in time in which Ghana and other countries applied for, benefited from it and exited and was done with. Currently, there is no HIPC programme ongoing for any country to apply for."So if anybody is spreading and adding to it a narrative that Ghana is now a HIPC and has been listed on an IMF or World Bank publication as such, we want to encourage all Ghanaians and the media to be circumspect and be aware that it is not true. It is a false narrative," he explained.

He added that the Akufo-Addo-led government upon assumption of office in 2017 was implementing strategic programmes and policies that restored the bad economic situation inherited from the previous government and that all the macroeconomic and fiscal indicators were heading on the right direction.

The burgeoning economic status, the Minister said, enabled the Akufo-Addo-led government to roll out various social interventions such as the free supply of water and subsidized electricity to lifeline consumers during the COVID- 19 pandemic restrictions.

Mr Oppong Nkrumah, explained that the Kufuor-led government after inheriting a bad economy in 2001, applied for the HIPC programme, which resulted in the cancellation of portions of the country's debts and has since exited the programme.

The Minister, urged the media to do thorough cross checking of any information well before publication, since some persons had hatched the plan of disseminating false news ahead of the elections.

The IMF, said on its website that since the launch of the initiative, the international financial community, including multilateral organisations and governments, have worked together to lower to sustainable levels, the external debt burdens of the most heavily indebted poor countries.

Launched in 1996 by the IMF and the WBG, the HIPC Initiative aimed at ensuring that no poor country faced a debt burden it could not manage.Ghana joined the initiative in February 2002 and after two about two years of working with the Bretton Woods institutions and the African Development Bank (AfDB) to implement the HIPC Initiative, about $3.7 billion of the country's debts were forgiven under the landmark initiative.

The country also benefited from other debt reliefs and economic opportunities from some of its creditors as a result of opting to be declined HIPC.

Recently, the former finance minister, Seth Terkper, challenged the government to show if the debt level has reduced since 2017. Nobody replied to him. The danger of this 77percent debt – to- GDP ratio is that all the fiscal buffers such as the sinking fund, seed money for the Ghana infrastructure investment fund, stabilization fund, etc have all been depleted.

The IMF only announced what the data says about public debt implications for Ghana. What the IMF did not say is that this 77percent debt- to- GDP has benefited from rebasing of the economy in 2018 meaning without the rebasing you can imagine what should be the debt – to – GDP.

The IMF did not tell us that the debt- to- GDP ratio after the rebasing ended 2018 with 57percent, meaning within one and a half years, it has deteriorated by 20percent.

This has huge implications for sustainable social investment, the fight against poverty and access to drinking water. It has effects on capital expenditure and growth.

The announcement by the IMF has muted many voices in Ghana because they did not believe it is possible to have these records as part of our debt management again. The IMF advised that borrowing from Central banks by governments because of COVID-19 should be the last consideration. In Ghana, the government borrowed Ghc10billion from the Bank of Ghana as the priority source. The lesson is we need a new strategy.

The attempt to trivialize the HIPC status without HIPC benefits should be a worry to everybody because it has serious negative implications for everybody. High debt is not a mere statistics, it is data with burdensome implications."