By Elorm Desewu
Ghana’s total public debt has continued to balloon further recording GHC273.8 billion or US$48.0 billion representing 71 percent of Gross Domestic Product, (GDP), during the first, nine months of 2020, compared with GHC209 billion or 39 percent of GDP during the same period last year, according to data from the Bank of Ghana, (BoG).
The external component of the debt has risen slightly to US$24.3 billion or GHC138.5 billion representing 35.9 percent of GDP compare with US$20.3 billion which was 30.8 percent of GDP during the same period last year.
The domestic debt component of the total debt has also risen to GHC135.3 billion representing 35.1 percent of GDP compared with GHC101.4billion recorded during the same period last year.
Already, the Institute of Economic Affairs, (IEA), has expressed worry over Ghana’s growing debt which is likely to hit a record high of GHC270 billion, representing 70 percent of Gross Domestic Product, (GDP) by the end of 2020.
According to Dr John Kwabena Kwakye, a Research Fellow at the IEA, the government needs to adopt a comprehensive debt management strategy, including restructuring, refinancing (or re-profiling) and debt buybacks.
The Finance Minister reported that the Ghana’s public debt stood at GH¢ 258.3 billion or 67.0% of GDP at the end of June during the midyear budget presentation to Parliament. “But going by the additional financing estimated for the second-half of the year, the debt level could reach GH¢ 270 billion or about 70% of GDP at the end of 2020.
Borrowing to fill the resource gap is inevitable since it is necessary to save lives, livelihoods and the economy. It is, indeed, a necessary evil—it has to get worse before it gets better” Dr Kwakye said.
According to the medium-term fiscal and economic growth profiles, the debt ratio could stay above the 70% level, deemed to be the sustainability threshold for countries like Ghana, until 2022. The servicing costs of the debt are also going to be substantial. In 2019, debt servicing used up as much as 46% of tax revenue and if this should escalate further, the fiscal space would be considerably narrowed.
“We are happy to note that the Minister recognized the problem of the high cost of debt and indicated that Government is trying to address it under a Medium-Term Debt Management Strategy. This strategy appropriately includes issuances/tap-ins of medium-term and long-term instruments and the refinancing of some maturing T-bills and bonds to reduce vulnerabilities in the debt portfolio. It also involves initiatives to achieve an appropriate financing mix of external and domestic borrowing so as to mitigate the costs and risks. But the bottom line is that if we also take measures to raise more revenue and streamline and rationalise expenditure, as we have been advocating, then we would be able to close the financing gap and reduce borrowing and further debt accumulation, which would ease the debt service burden’ he said.
