On Budget Deficits: US and Ghana

So President Obama last night enacted wide-ranging $85 billion spending cuts in a bid to close the deficit. Total public debt in the US was approximately $11.822 trillion or about 74% of GDP. About 48% of the debt was owned by foreign investors, the largest of which were China and Japan at just over $1.1 trillion each. This would obviously hurt the US economic recovery already tiptoeing to get back on its feet from the remnants of the financial crisis. Austerity economics implies raising taxes on the middle class and cutting public spending but with an already weakened global economy that could lead the US back into recession. In the UK we’re talking about a trip-dip recession already.

The problem is that any attempt to reduce expenditures today will be somewhat self-defeating according economists such as Paul Krugman and Robert Skidelsky. It will further weaken the economy, lead to lower growth and reduced tax revenues in the future, and so greater deficits and debt in the end. At least in the US the deficit went into spending on pensions, education, defence, healthcare and infrastructural projects which ultimately generate a higher social return.

I’ve been asking myself, can the same be said of Ama Ghana? No definitely not! In Osgyefo’s Ghana we spent a whopping GH¢7.5 billion (10.66% of GDP) of our monies paying civil servants for which there was no commensurate return in productivity and another GH¢339 million (0.5% of GDP) on higher utility and fuel subsidies mainly consumed by the ministries and the upper and middle class. By the way, what happened to the computerization effort to eliminate payroll fraud? The actual capital expenditures in roads and infrastructural developments which will open up the economy were rather 22.7% lower than the target.

What is even more worrying is that Ghana’s deficit was financed mainly from domestic borrowing sources which amounted to GH¢7.1 billion out of GH¢8.7billion. This has a real tendency of crowding out the private sector as risk averse banks  would rather put their monies in safe government securities for a 22% return in just 91 days than lend to the businessman at Abossey Okai or Makola for an uncertain return of say 28% spread over 2 years.

We must put our house in order lest we run the risk of saddling future generations of Ghanaians with onerous debts and taxes without any accompanying physical development and social progress to show for it.

About the Author

Theo Acheampong
Theo is an economist and social media enthusiast who provides regular commentary on socioeconomic and political developments in Ghana and Africa at large. Theo is passionate about leadership, entrepreneurship and the role of innovative technologies in solving Africa's developmental challenges.