The International Monetary Fund (IMF) expects Ghana’s gross public debt stock to reach its apex at 87.4 percent by 2024. According to the IMF, the projection hinges on the assumption that the country will continue to have access to the international markets with no further recourse to central bank financing.
Also, for this to manifest, the Fund expects the country’s inflation to remain close to the Central Bank’s target over the medium-term.
“Public debt would peak at 87.4 percent of GDP in 2024, and gross financing needs would average 22 percent of GDP. The baseline scenario assumes continued access to international markets and no further recourse to central bank financing”.
IMF
However, with stronger fiscal consolidation, the IMF expects public debt to peak at about 85.7 percent of GDP in 2024 and then decline decisively. With this, the Fund is optimistic that Debt-service indicators would improve. But warns that annual gross financing needs would still remain around 20 percent of GDP.
Nevertheless, the IMF indicated that a stronger fiscal contraction would have a negative short-term effect on growth, but would decrease bond spreads and government’s borrowing costs. The current account would improve through lower import demand.
Also, the Fund stressed that a strong fiscal consolidation would allow a shift in the policy mix over the medium-term. This will enable a more relaxed monetary policy stance that will cut domestic debt service costs and spur private-sector credit growth.
Development in public debt
Ghana’s current debt position remains at high risk of debt distress. As such, the IMF warns that a growth shock would send overall public debt on an ever-increasing path.
“External and overall debt are at high risk of debt distress. The external rating results from breaches of the present value (PV) of external debt to GDP until 2029. The overall risk of debt distress is also high because the PV of public debt-to-GDP exceeds the benchmark for the full horizon”.
IMF
Gross public debt has seen a steady rise in the past decade. According to the IMF, public debt grew from 23 percent of GDP in 2007, the year of the first Eurobond issuance, to 79 percent of GDP in 2020. This pushed gross financing needs above 25 percent of GDP and debt service above 129 percent of revenues.
The IMF attributed the rise in the debt stock to large and persistent government deficits and rising interest costs relative to economic growth.
Meanwhile, recent data from the Ministry of Finance show that the country’s provisional nominal debt stock stands at GHȼ334.6 billion as of End-June 2021, representing 77.1% of GDP.
Need for stronger fiscal consolidation
For now, government needs a stronger fiscal consolidation to address growing debt sustainability risks. An effective strategy would involve additional and more progressive revenue measures and a faster return to the pre-pandemic level of spending.
The IMF, for instance, urged the country to shift its spending composition towards social, health, and development spending. The government needs to accelerate these measures if fiscal risks or budget financing challenges occur.
Additionally, the IMF advised government to phase out untargeted COVID-19 support schemes to free up resources to strengthen social spending.
One of such spending is boosting the LEAP cash-transfer program, which the IMF said, is still low in Ghana. In addition, government could achieve immediate savings from linking new financial sector payments to the proceeds from claim recoveries.
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