Ghana’s Heavy Borrowing Fails to Spur Investment and Growth
Professor Peter Quartey discusses the disconnect between Ghana’s significant borrowing and its lack of corresponding economic growth. He highlights the misallocation of funds toward salaries and interest payments instead of productive investments. He proposes urgent measures including a 60 percent debt ceiling and a framework to align loans with strategic investments for economic enhancement.
Professor Peter Quartey, an economist and Director of the Institute of Statistical, Social and Economic Research at the University of Ghana, has expressed concerns about Ghana’s inability to achieve the anticipated economic growth and investment despite significant borrowing over the last twenty years. He emphasized that much of the borrowed funds have been allocated towards salaries and repayment of loan interest rather than being channeled into productive sectors of the economy.
During his inaugural lecture as a Fellow of the Ghana Academy of Arts and Sciences, Professor Quartey advocated for the urgent establishment of a 60 percent debt ceiling and the formulation of a framework to align loans with investments that would yield economic returns and enhance the quality of life for citizens. He referred to his lecture as “Debt, Investment, and Growth in Ghana: Did we borrow to consume?” and presented empirical analyses indicating that public investment has yielded limited long-term growth benefits due to inadequate project appraisal and management processes.
He noted a concerning rise in Ghana’s debt from 42.9 percent in 2013 to 82.9 percent in 2023 and projected a reduction to 61.8 percent by the end of 2024, attributing this to ongoing debt restructuring efforts. He highlighted a significant decline in capital spending, from 6.9 percent of GDP in 2010 to only 2.4 percent of GDP in 2023, with a slight increase anticipated to 2.5 percent in 2024. This capital expenditure is essential for public infrastructure and is intended to foster long-term economic growth by creating jobs and improving productivity.
Professor Quartey identified the root causes of the disconnect between high debt levels and low investment as stemming from ineffective project selection, appraisals, and a weak framework for the monitoring and evaluation of projects. He provided an example of the US$12 million allocated to the Pwalugu multi-purpose Dam project, which has been stalled for six years with no progress in its execution, reflecting broader issues within the project approval processes in the country.
The Professor noted the absence of rigorous approval processes for large projects, which leads to significant delays and inefficiencies in execution. Additionally, he criticized the poor utilization of invested funds due to inadequate procurement practices and lack of competitive bidding, pointing out Ghana’s deficient evaluation framework following project completion. He urged for a strategic approach to selecting capital projects through a national development planning process, rather than through partisan interests. This would involve considering a medium-term strategy that aligns with national developmental goals.
Professor Peter Quartey’s insights reveal that despite Ghana’s extensive borrowing, the country has fallen short in realizing the anticipated investment and growth outcomes. He highlights the need for structural reforms in project selection, appraisal, and execution processes. By advocating for a framework that ties debt to productive investments, he emphasizes the importance of strategic planning in ensuring future fiscal responsibility and economic development.
Original Source: gna.org.gh
