Vice President, Dr Mahamudu Bawumia has outlined two major reasons which contributed to Ghana seeking support from the International Monetary Fund (IMF) as a result of the balloon of the county’s public debt.
According to him, COVID 19 expenditure alone cannot be the only reason for the increase in Ghana’s public debts.
He mentioned other contributors such as the banking sector cleanup exercise, as well as the excess energy capacity payment by the government on power that are not in used, are also contributing factors to the rising debt.
Dr Bawumia said these while justifying the decision by the government to go to the International Monetary Fund for support when speaking at the launch of the Accra Business School IT programme in Accra on Thursday, July 14, 2022.
Giving further details on the contributing factors, the Vice President said an amount of GH¢17billion was spent in paying for the excess energy that Ghana did not need but had to pay for due to the agreement signed by the National Democratic Congress (NDC) administration.
He said “Some commentators and analysts have argued that the Covid 19 expenditure by the government alone could not be the reason for the increase in the fiscal deficits and the debt stock. In fact, they are right, Covid 19 expenditures alone were not the reasons for the large increase in Ghana’s debt stock by the end of 2021.
“In fact, as I stated in my April 7 lecture, this year, in addition to Covid-19, there are two major items of expenditure that are critical in understanding the evolution of the fiscal deficits and the debt stock. These two items are the banking sector cleanup and the Energy Sector excess capacity payment.
“The excess capacity payment of GHC17bn relates to the legacy of take-or-pay contract that saddled our economy with annual excess capacity charges of closed to $1bilion a year. These were basically contracted to supply energy to Ghana in excess of our requirements at the time. We were obligated to pay for the power whether we used it or not.
“The excess capacity payment of this GHC17billion includes the GHC7 billion payment for gas resulting from signing of an off-take agreement for a fixed quantity of gas with ENI, Sankofa on take-or-pay basis which was way in excess of what we needed at the time.”
By Vincent Kubi