Ghana’s main opposition leader and former president warned that West Africa’s second-largest economy is at risk of defaulting on its debt unless “something drastic is done.”
Total public debt increased to 351.8 billion cedis ($46.7 billion), or 76.6% of gross domestic product, at the end of last year, from 291.6 billion cedis, or 74%, at the end of 2020, according to data from the Ministry of Finance. It stood at almost 380 billion cedis at the end of the first quarter, John Mahama, the head of the National Democratic Congress said in a lecture on Monday. Annual debt service costs have risen five-fold to about 50 billion cedis since 2016, he said.
“More than half of what government collects in taxes is used to service debt, with the remainder going almost exclusively into public-sector wages,” Mahama said. “The effect of this, is that government is unable to meet its spending obligations in the most critical sectors of the economy on which the livelihoods of millions of our people depend.”
He urged President Nana Akufo-Addo to sack his finance minister, reshuffle his cabinet, reduce expenditure and overhaul the Economic Management Team to deal with soaring debt. The government in March said it would deepen spending cuts to achieve its budget deficit targets, and it recently started collecting a tax on electronic payments.
The new tax is unlikely to make a significant contribution in resolving the nation’s problems and will have an adverse effect on Ghana’s people, Mahama said.
The opposition leader’s comments add to mounting pressure on the government to do more about Ghana’s worsening economic outlook and high living costs. On Sunday, the Trade Unions Congress called on the government to scrap taxes on gasoline and diesel until crude prices and the cedi stabilize, and for public sector workers to be given a 20% cost of living allowance.
The inflation rate has surged to 19.4%, a more than 12-year high, and interest rates have risen by 350 basis points since November. The cedi is the worst-performing African currency against the greenback this year, depreciating by 19%, and dollar-denominated government debt is trading at distressed levels.
Mahama seeks to lead the NDC to victory in the 2024 polls after losing to Akufo-Addo of the New Patriotic Party in the 2016 and 2020 votes.