The Institute of Fiscal Studies (IFS) has indicated that the US$50 billion century bond the Finance Minister intends to capture in the 2019 budget could be dangerous for the economy.
In its recent policy brief titled, ‘Strong Economic Growth and Significant Reduction in Unemployment: The critical issues to address in Ghana’s 2019 budget’, the institute said the US$50 billion century bond being contemplated by the government was huge and could cause serious damage to the economy even if the government succeeded in borrowing the money at normal interest rates.
“A US$50 billion century bond would be too much for a country with a GDP of under US$60 billion and would be a dangerous experiment that could harm future generations,” it stated.
President Nana Addo Dankwa Akufo-Addo, during a visit to China recently, announced that Ghana might soon join the likes of Argentina, Austria and Mexico to issue the rare 100-year bonds to finance national projects.
He said that was to provide the country with the resources to finance its infrastructural and industrial development.
But the IFS is asking the government to reconsider this decision because of what it describes as the dire consequences the move may have on the economy.
US$2 billion loan
The institute also pointed out that although the government’s effort to secure US$2.0 billion to support infrastructure development was laudable, the funds should be brought under the Ghana Infrastructure Investment Fund (GIIF).
“For the purposes of effective management of the risks associated with the projects, the arrangement should be brought under the umbrella of the GIIF which has been set up to purposely raise funds to finance such projects,” it noted.
It also urged the government to explore opportunities for tapping into private financing for infrastructure projects, creating new partnerships and reducing waste in such investments.
That strategic shift, it said, should be driven by the realisation that scaling up financing from traditional sources alone would not be adequate to close the infrastructure financing gap.
“It is, therefore, crucial to open opportunities to attract private investors, as well as exploring public-private mechanisms for financing infrastructure projects in the country,” it said.
Pruning down of govt programmes
The IFS also asked the government to consider pruning down its numerous programmes and initiatives.
That, it said, was because of the weak fiscal state in which the country found itself, in terms of the lack of fiscal space to manoeuvre, which is caused by the weak revenue-generating capacity of the state and the excessive fiscal rigidity in the budget.
“For instance, establishing a factory and a warehouse in each of the 216 district assemblies and one industrial park in each region will be too much an overload for the budget.”
Encourage and support entrepreneurship
The institute further urged the government to encourage and support entrepreneurship development by reforming the post-senior high school education curricula to include technical and entrepreneurial disciplines.
It said that would provide the youth and graduates with entrepreneurial skills that would enable them to set up their own businesses or to become more employable in the job market.
“The government should also set up business incubators as a mechanism to support business development and management and strengthen labour market information and monitoring systems to ensure a regular flow of information on employment opportunities.” — GB