Ghana asked to enact law to regulate borrowing

By Dasmani Laary
Posted on Tuesday, 17 February 2015 15:29

The Institute of Economic Affairs (IEA) has warned that if a law is not passed to control undue government borrowing, the West African nation risks retrogressing to the 1985 era, described as “a painful period of near economic collapse”.

Should we continue on this path [we will] return our nation to where it was some thirty years ago, at the brink of financial collapse

Ghana’s economy, by 1983 was on the brink of collapse due to its huge national debt and high fiscal deficits.

The national debt had reached a catastrophic level of 107.5% of gross domestic product (GDP), inflation was 142%, and commercial banks had stopped lending to commercial enterprises.

The economy was tottering on the precipice of total collapse.

“We had mismanaged ourselves and were at the brink of total failure,” IEA said.

“We needed help to save ourselves,” IEA said.

“The leaders of the country had no option than to run to the IMF (International Monetary Fund) and the World Bank to seek help to revive Ghana’s sick economy.

“Should we continue on this path, our national debt will grow to about 70% of GDP by 2016 and close to 100% by 2020, returning our nation to where it was some thirty years ago, at the brink of financial collapse.”

The policy institute has proposed Ghanaians adopt fiscal policy rules with ceiling on annual fiscal deficits, adding, that rule ought to be incorporated in a legislation to govern the entire public sector financial management system with well-defined sanctions for violating the law.

“By so doing, our decision makers or political leaders will be guided by a clearly defined legal framework,” it added.

Several countries including Chile, Brazil, United States of America and countries of the European Union have adopted such frameworks to protect their economy and citizens from short-term polices for political expediency.

Ghana is set to agree a deal with the IMF on economic bailout, but the policy institute queried the number of times Ghana has resorted to international lender to fix the economy.

The IMF intervention will be the fourth in 30 years, according to the IEA.

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