The African Development Bank (AfDB) has advised Ghana not to be heavily dependent on loans for its long-term national development.
Professor Kevin Chika Urama, Chief Economist of AfDB, said that relying on loans, especially from the capital market, risked not yielding the needed revenue in the short-to-medium term, making repayment difficult.
The AfDB Vice President for Economic Governance and Knowledge Management said this in an interview with the Ghana News Agency at the just-ended annual meetings of the Bank in Sharm El Sheikh, Egypt.
He noted that borrowings to fund long-term development-oriented programmes and projects often resulted in the accumulation of debt, which put economies into crisis.
“When you depend on borrowing for investing in long-term infrastructure, you have a mismatch because development projects normally take about 30 years or more to offer revenues or dividends or to be able to break even,” he said.
Prof Urama said when borrowings were done, particularly at high coupon rates, it sets a country up for failure, “because the projects you’re putting the resources will not mature when the duration of paying back the loans fall due.
“You’re then forced to look for money elsewhere, which is challenging for most African countries because of the fiscal constraints,” the AfDB Chief Economist added.
On Ghana’s debt treatment and the recently approved International Monetary Fund (IMF) loan-support programme, he said AfDB was working with Ghana to provide technical and policy support to the country to address the debt challenges.
“We’ve had meetings with the Finance Minister, both during the IMF/Bank World spring meetings and had a special high-level delegation that went to Ghana to work with the technical teams,” he said.
“Discussions are ongoing, and we’ll be providing technical assistance and policy-based operations, and we’re doing this together with our partners to coordinate support for the country,” Prof Urama told the GNA.
Ghana has been locked out of the capital market for more than a year, with an accumulated public debt of GHS434.6 billion (72.2 per cent of Gross Domestic Product – GDP) as of December 2022.
Meanwhile, the Government is optimistic that with the $3bn IMF loan programme, Ghana would be able to return to the market.
“We have positioned ourselves to be able to go back into the International market which had been a source of funding for us during the first three or four years of our government,” President Akufo-Addo said recently.
The president who was speaking at the Qatar-Africa Economic Forum in Doha, added that: “There is no rush but obviously why not take advantage of global savings, it makes a lot of sense to me.”
Mr Ken Ofori-Atta, Finance Minister at a press briefing after securing the IMF programme also said that “Working towards the capital market is important because we then get our ratings up and make the country more attractive for foreign investors, especially [getting] FDI.”
“Going forward, we’ll find ways of ensuring that we’re efficient in our deployment [of the $3bn funds] … and ensure efficiency in providing services to the people,” he said.