The Debt And Its Effects On The Economy And Growth Prospects Essay

818 Words Apr 10th, 2016 4 Pages
I think the Debt/GDP ratio could be slightly higher as election years have always seen a reduced growth forecast even for nominal GDP. However, at that debt level, even though in practice it is difficult to determine what a “safe” debt level, the macroeconomic environment points to the fact that our fiscal space (maximum debt threshold) is almost running out. Therefore Ghana will be faced with severe debt sustainability risk with the rising debt levels. With the slow real GDP growth, low revenues and high interest rates, we cannot allow the debt ratio to reduce progressively through growth neither paying it down deliberately with short term securities. Even though government may have accumulated the debt for “good” reasons, it poses a severe deadweight burden on the economy and growth prospects. The lack of controls on debt-financed government spending means our sovereign risk premiums will rise through low credit ratings and the fact that a shutout from international markets would ensue is more likely.
If government is guiding itself against the fact that the debt-financed investment will yield enough returns to lower the debt ratio, then they need to be wary on that approach. This can hold if only the spending-multiplier effect is higher on growth, interest rate is minimal and the said investment is supper-efficient and not like building public toilets and schools. Even in the develop world, many countries are abolishing such set of middle-of-the-road assumptions in…

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