The current debate surrounding Ghana’s national debt, which stands at a staggering GHS780 billion, has sparked heated discussions. Many critics of the NPP government point to the fact that the debt has risen dramatically since the tenure of President Mahama, who left the country with a debt of GHS120 billion. This stark difference is often used to argue that the NPP is poor at managing the economy, but such claims fail to acknowledge the broader context of the situation.
One crucial factor that is often overlooked is the exchange rate. All of Ghana’s borrowing is done in foreign currencies, primarily US dollars. The current exchange rate is hovering around GHS16 to the dollar, significantly higher than the GHS4.3 to a dollar in 2017 when Mahama left office. This fourfold increase in the exchange rate has inflated the nominal value of the country’s debt, even though the NPP government has not borrowed substantially more in terms of actual US dollar amounts.
Thus, while the national debt appears to have ballooned, the true story lies in the deterioration of the cedi’s value over the years. The depreciation of the local currency against the US dollar, driven by macroeconomic factors, has made Ghana’s foreign-denominated debt appear much larger in cedi terms. This is an important distinction that critics of the government often conveniently ignore, misleading the public into thinking the government is borrowing irresponsibly.
The government’s expenditure during the COVID-19 pandemic also played a significant role in the accumulation of debt. According to an audit report by the Finance Ministry, a total of GHS21.8 billion was mobilized for the Covid-19 response between March 2020 and June 2022. This spending was necessary to combat the public health crisis, support businesses, and provide relief to citizens, many of whom were unable to work during the lockdowns. A substantial portion of this amount was spent on paying state employees who were on lockdown or working remotely.
Furthermore, the economic challenges caused by the pandemic necessitated increased government spending, which had a knock-on effect on Ghana’s fiscal position. The government’s focus on saving lives and maintaining social stability during this period, despite its high cost, was a critical response to an unprecedented crisis. The resulting increase in debt was not solely a result of financial mismanagement but rather a necessary step in navigating the global health emergency and its economic fallout.
If the NPP had decided not to borrow a single dollar since 2017, Ghana would still owe almost GHS 500 billion, based on the $27.9 billion in foreign debt that was already owed pre-Akufo-Addo. The debt would still have grown due to the depreciation of the cedi and the need to service existing obligations. However, the good news is that the NPP government is now showing tangible results with the GHS200 billion in new borrowing. These funds have been used to finance major infrastructure projects, roadworks, and initiatives that have the potential to boost the economy in the long run. Hopefully, these projects will be enough to convince voters that the government’s borrowing was not in vain and that it was directed towards building the country’s future.
While the growing national debt is a valid concern, it is essential to consider the factors that have contributed to its rise, especially the exchange rate and the costs associated with managing the COVID-19 pandemic. The narrative of poor economic management by the NPP, based on comparisons to Mahama’s time in office, oversimplifies the complexities of the situation. Understanding the true reasons behind Ghana’s debt burden requires a more nuanced discussion, one that takes into account both domestic policies and external economic factors.
