[ 2016-01-29 ]

Mr Seth Terkper, Minister of Finance

Gov’t misses interest expense target
Excessive borrowing is set to push government’s
interest expenses beyond the planned levels
despite a decline in the cost of borrowing,
figures from the Finance Ministry has shown.

According to fiscal figures for the first 11
months of 2015 released by the Finance Ministry on
Thursday, government exceeded its planned interest
payments by GH¢181.36million, which is more than
the 2016 budget for the Ministry of Transport and
Ministry of Tourism put together.

Government had budgeted a little above
GH¢7.98billion as interest payments for the first
11 months of last year; however, provisional
figures from the Finance Ministry show that the
state ended the period by expending above
GH¢8.16billion as interest on its debts.

This indicates that the ratio of interest
payments-to-revenue (which stood at GH¢28.1
billion as at the end of November last year) is
now estimated at 28.9 percent; and given the trend
depreciation of the cedi since beginning of the
year, the relatively high proportion of government
debt denominated in foreign currency -- around 60
percent -- could weigh on debt affordability.

In its revised budget to parliament last year,
Finance Minister Seth Terkper indicated that the
Mahama-led administration will in 2015 pay
GH¢9.36billion as interest on loans borrowed to
finance its activities; but indications are that
government could exceed the interest payment
budget for last year when the Finance Ministry
publishes the December fiscal figures by March
this year.

This is nearly 400 percent above the
GH¢2.44billion total interest expenses the
country paid four years ago.

It is strongly argued that the rise in interest
costs over recent years have been caused by the
large budget deficits registered over the years,
especially since 2012 -- which were financed by
borrowed funds from both domestic and foreign
sources at high interest rates.

In 2009-2010, interest payments accounted for an
average of 18.4 percent of domestic revenue. This
figure dropped to an average of 14.8 percent in
2011-2012, but rose to 30.3 percent in 2014-2015.

In 2016 interest payments are projected to absorb
28.8 percent of total domestic revenue, which
means that for every GH¢1 to be collected as
domestic revenue GH¢0.29 will go into interest
payment, leaving the rest for other recurrent
expenditures including wages and salaries, other
statutory demands such as transfers to government
units, and the much-needed capital expenditure.

The growing interest payments on debts has thus
fuelled continued concerns of interest burden on
the state coffers, with the Institute of Fiscal
Policy arguing that interest payments now exceed
capital expenditure and could soon outstrip the
public sector wage bill.

“In fact, the 6.2 percent of GDP interest
payments in 2014, the projected 7.0 percent in
2015, and 6.6 percent in 2016 will be three
successive years since 2000 that total interest
payments will be larger than total capital
expenditure,” noted IFS.

Global credit rating agency Fitch has also said
that Ghana’s interest burden is the highest
among its rated sub-Saharan African countries,
while other analysts have expressed worry over the
escalating interest on the country’s debts.

As at September 2015, the total public debt stood
at GH¢92.2 billion -- equivalent to 69.1 percent
of GDP. Currently, however, the public debt level
of government is not yet available, but the
central bank says that total domestic debt as at
December last year was GH¢38.8 billion; which
more than the GH¢38billion recorded in November.

The International Monetary Fund (IMF), which is
helping the government to manage the Ghanaian
economy under a 3-year Extended Credit facility
progarmme, says Ghana’s public gross financing
needs are among the highest of frontier/emerging
markets at above 25 percent of GDP in 2015.

The Fund says that about half of the gross
financing needs is done through short-term
domestic debt, and that the roll-over of domestic
debt and domestic interest payments comprise
around 60 percent and 25 percent of gross
financing needs respectively.

According to the Fund, the shortfall in financing
due to the lower-than-planned Eurobond issuance
was filled with domestic financing, coinciding
with the easing of domestic liquidity constraints
-- including through the Bank of Ghana’s foreign
exchange swap transactions with domestic banks.

Source - B&FT

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