Ghana’s Borrowing Ineffectiveness: A Call for Strategic Investment Framework

Professor Peter Quartey highlights Ghana’s heavy borrowing has not led to expected investment and growth, with funds redirected to salaries and loan interests. He calls for legislation on a debt ceiling and better project management practices to drive growth. The decline in capital spending underscores the urgency for a strategic investment framework.

Professor Peter Quartey, an esteemed economist and Director of the Institute of Statistical, Social and Economic Research (ISSER) at the University of Ghana, revealed that despite significant borrowing in Ghana over the last twenty years, the anticipated investment and economic growth have not materialized. Rather, most borrowed funds have been allocated to salaries and interest on loans instead of enhancing productive sectors.

During his inaugural lecture for the Ghana Academy of Arts and Sciences, Professor Quartey emphasized the urgent need for legislation imposing a 60 percent debt ceiling, alongside the establishment of a framework to align loans with productive investments that could drive economic growth and enhance citizens’ welfare. He questioned whether the debt incurred has been utilized effectively to stimulate development.

In his analysis, he identified a lack of effective project appraisal and management as contributors to limited public investment impact on long-term economic growth. For instance, Ghana’s national debt surged from 42.9 percent in 2013 to 82.9 percent in 2023, with projections suggesting a reduction to 61.8 percent by the end of 2024 as part of a debt restructuring effort.

While capital spending represented 6.9 percent of the Gross Domestic Product (GDP) in 2010, it has declined to 2.4 percent in 2023, with a slight anticipated rise to 2.5 percent in 2024. This capital expenditure is crucial for public infrastructure investments and is intended to yield long-term benefits such as job creation and increased productivity.

Professor Quartey attributed the discrepancy between Ghana’s elevated debt levels and inadequate investment and growth to deficient project selection processes and ineffective monitoring and evaluation frameworks. He referenced specific cases where government borrowing yielded minimal economic benefit, highlighting the stalled Pwalugu multi-purpose Dam project despite its initial funding allocation of US$12 million.

Furthermore, he noted inefficiencies in project execution, often stemming from poor procurement practices and the absence of competitive bidding. Emphasizing the need for accountability, he recommended developing a framework that ensures strategic investments align with debt levels, based on a national development planning process rather than partisan interests. A strategic approach is imperative for achieving the desired outcomes of investment projects in Ghana.

In conclusion, while Ghana’s extensive borrowing over the years was aimed at fostering investment and growth, the lack of effective implementation and management has hampered these efforts. Professor Quartey advocates for a stringent debt ceiling and improved project selection methodologies, emphasizing the necessity of aligning national development strategies with financial investments to achieve economic prosperity.

Original Source: gna.org.gh