Despite the public debt rising to GHS214.9 billion as at November 2019 and recent warnings of the country likely crossing the high risk of debt distress threshold, Vice President, Dr. Mahamudu Bawumia, says the rate of debt accumulation over the last three years is the lowest Ghana has achieved in a decade.
The New Patriotic Party in its 2016 manifesto specifically promised “savings from the reduction of interest
rates paid on the country’s debt stock.”
This formed part of a broader strategy to improve Ghana’s macroeconomic stability.
Addressing a town hall meeting in Kumasi on Tuesday, the Vice President, noted that there’s been “significant progress” in this regard because other promises, like the realisation of the Fiscal Responsibility Act, had been met.
“The strong fiscal adjustment that has taken place and better debt management meant that the rate of debt accumulation has slowed down considerably to the lowest in a decade. Between 2008 and 2012, Ghana’s debt stock increased by 267 percent. Between 2012 and 2016, Ghana’s debt stock increased by another 243 percent. But between 2016 and 2019, the increase has been by 79 percent. So there is a big difference.”
He further attributed the decline in fiscal deficit on a cash basis from 6.8 percent of rebased GDP in 2016 to 3.8 percent in 2018, 4.8 percent in 2019, to these promises.
Continuing to pat himself on the back, he added that “for the first time in a decade, Ghana recorded primary balance surpluses…three years in a row.”
The primary balance surplus was 0.5 percent of GDP in 2017, 1.4 percent in 2018 and 0.9 percent in 2019 compared to a deficit of 1.1 percent in 2016.
This is contributing to a slower rate of debt accumulation which Dr. Bawumia said means they are “implementing good fiscal management and prudent fiscal management.”
The total public debt has increased from GHS122 billion in 2016 to GHS214 billion in November 2019 representing 62.2 percent of GDP.
But Dr. Bawumia reminded Ghanaians that the increased debt included the cost of the banking sector cleanup which is over GHS13 billion.
“Excluding the cost of the banking sector cleanup, the debt stock stands at GHS203 billion or 59.1 percent of GDP,” he said.
Because of what he held was better debt management, “the rate of debt accumulation has slowed down considerably to the lowest in a decade.”
All this, the Vice President said, was in service of the promise to reduce the rate of borrowing.
In addition, he said Ghana’s interest as a percentage of GDP has declined from 6.9 percent of GDP to 5.6 percent in 2016 to 5.6 percent in 2018 to 5.7 percent in 2019.
Possible incoming debt distress
Ghana’s recent sale of $3 billion in Eurobonds puts it in high risk of distress, according to the International Monetary Fund.
Ghana received about $15 billion in offers for the debt issuance that included a tranche of sub-Saharan Africa’s longest-yet Eurobond with an average life of 40 years.
The sale would increase Ghana’s debt burden, which the International Monetary Fund estimated was 63% of gross domestic product at the end of 2019.
The World Bank also cautioned Ghana against piling its external debt and exceeding the sustainability threshold.
The Africa Economic Outlook, in its section on Ghana, also warned that increased foreign participation in Ghana’s debt exposes the country to global market swings and foreign exchange risks.
It noted that “mounting energy sector liabilities, due to excess installed capacity from take-or-pay contracts with independent power producers, and the ongoing financial sector clean-up are likely to lift the debt-to-GDP ratio above the current 60.6 percent.”
In addition, despite the Fiscal Responsibility Act, it warned that the runup to elections might put pressure on the government to overspend and under-tax “which could derail progress toward fiscal consolidation.”
The Finance Minister, Ken Ofori-Atta, in turn, assured that Ghana’s debt to GDP, which is the total value of all goods and services produced, will not escalate to alarming levels with the issuance of the latest Eurobond.
