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The recent reduction in the total debt to Gross Domestic Product (GDP) ratio, as announced by the Bank of Ghana last week, has raised eyebrows among a section of the public.

Analysts say the growth in GDP for the first quarter this is possible but rare given the economic predicaments that the country is faced with.

“These include the challenges in the energy sector, depreciation of the currency, high cost of doing business in Ghana, loss of business confidence, external sector vulnerabilities, relatively high interest rates, decline in credit growth in real terms from 21.9 per cent to 17 per cent, etc,” they outline.

They maintain these negative factors have the potential to reduce real growth making the debt/GDP ratio of 65.3 per cent difficult to understand.

Last week, the Monetary Policy Committee of the Bank of Ghana (BoG) headed by Dr Henry Kofi Wampah said the country’s total public debt stock, as of end March 2015, stood at GH¢88.2 billion representing 65.3 per cent of GDP.

Interestingly, the current debt stock had bloated by GH¢12 billion from the GH¢76.1 billion that was recorded in December 2014 representing 67.1 per cent of GDP.

The disconnect however is the reduction in the debt to GDP ratio by 180 basis points even though the debt stock has increased by GH¢12 billion.

In an interview with Business Finder, Dr Raziel Obeng-Okon, lecturer at the Ghana Institute of Management and Public Administration (GIMPA) and an Investment Advisor, noted that the trend needs further explanation from the “Bank of Ghana and Ghana Statistical Service for the public to know the specific aspects of the GDP growth which has reduced the debt/GDP ratio by almost 180 basis points from 67.1 per cent in December 2014 to 65.3 per cent as at March 2015.”

He said by implication, the increase in the total public debt by GHC12.1 billion in the first quarter of 2015 has increased the GDP by about GH¢21.7 billion in nominal terms - from GHc113.4 billion by the end of 2014 to GHc135.1 billion by the end of March 2015

“This growth in GDP compares favourably with the level of inflation and currency depreciation of about 16.6 per cent and 17.0 per cent respectively during the same period,” Dr Raziel Obeng-Okon said.

The GIMPA lecturer maintains the reduction of debt/GDP ratio, in nominal terms, may be possible if the increase in GDP is due to inflation using the expenditure method of computing the GDP.

He however points that the factors that contributed to the first quarter inflation such as exchange rate pass-through effects, upward prices in energy and utilities, cost push factors associated with the persistent energy sector challenges, etc. have the potential to reduce productivity and GDP. 

GDP can be calculated in one of two ways: either by adding up what everyone earned in a year (income approach) or by adding up what everyone spent (expenditure method).

The expenditure method is the most commonly used approach and is calculated by adding total consumption, investment, government spending and net exports.

Logically, which ever approach is used, both measures should arrive at roughly the same total.

On the other hand, Dr Obeng-Okon said the encouraging fiscal performance that resulted in a cash fiscal deficit equivalent to 0.6 per cent of GDP, against a target of 1.9 per cent during the first quarter of 2015, suggest an improvement in revenue generation which has the potential of increasing the GDP using the income approach.

“It may also be possible that previous capital investments are beginning to yield dividends,” Dr Obeng-Okon added.

He said however said the gains achieved on the fiscal side may justify the growth in GDP using the income approach or through inflation using the expenditure approach “but the quantum of growth needs further explanation.”