Did Government Borrowing Take Ghana To Brink Of Economic Collapse?

Did Government Borrowing Take Ghana To Brink Of Economic Collapse?

Ghana is about to make a bailout deal with the International Monetary Fund — its fourth in 30 years — due to government spending that could take the country to near economic collapse, according to TheAfricaReport.

Ghana’s public debt stock increased from 48.03 percent in 2012 to 60.8 percent in September 2014. The Institute of Economic Affairs, a London-based think tank that promotes free market ideas, called for a law to be passed regulating excessive government borrowing in Ghana.

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

Banks had stopped lending to businesses, inflation was 142 percent and the national debt had reached a catastrophic level of 107.5 percent of gross domestic product, according to  TheAfricaReport.

“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,” according to the Institute of Economic Affairs. “Should we continue on this path, our national debt will grow to about 70 percent of GDP by 2016 and close to 100 percent by 2020, returning our nation to where it was some 30 years ago, at the brink of financial collapse.”

The Institute of Economic Affairs proposed that Ghanaians adopt fiscal policy rules with a ceiling on annual fiscal deficits, and that they become laws governing 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,” IEA said.

Several countries including U.S. Brazil, Chile 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 questioned the number of times Ghana has gone to an international lender to fix the economy. The IMF intervention will be the fourth in 30 years, according to the IEA.