The government of Ghana has planned to put a cap on its concessional and non-concessional borrowings in the rest of the year to bring down its nominal debt.

According to Finance Minister, Ken Ofori-Atta, efforts to bring Ghana’s debt to sustainable levels of moderate debt distress will require the acceleration of an aggressive fiscal consolidation plan to ensure the return of the primary balance to surplus territory in the medium to long-term.

“In 2022, strategies including capping concessional and non-concessional borrowing will be enforced to achieve a sustainable nominal debt-to-GDP. This would be key to reduce debt levels and ensure timely servicing of debt. The medium-term fiscal framework will, therefore, be anchored on fiscal adjustment and structural reforms to ensure long-term debt sustainability”.
Ken Ofori-Atta

Hon. Ken Ofori-Atta disclosed that government conducted a Debt Sustainability Analysis (DSA) in June 2022 to evaluate the solvency and liquidity status of the country’s total public debt portfolio, while considering current and future debt service obligations.

According to him, the DSA show that the outlook for Ghana’s debt sustainability is challenged by emerging risks and vulnerabilities. These vulnerabilities and global exogenous shocks include: weak recovery from COVID-19 pandemic, investor sentiments, exchange rate depreciation, high inflation, negative primary balances, and the crystallization of contingent liabilities from both the energy and financial sectors.

He warned that these challenges “will pose significant solvency and liquidity risks in the medium to long-term”.

For the period ending June 2022, the provisional nominal debt stock stood at GH¢393.4 billion, equivalent to 78.3 percent of GDP. Hon. Ken Ofori-Atta explained that growth in the public debt stock was due to exchange rate shock, especially the sharp depreciation of the currency experienced in Q1-2022.

In terms of composition, the domestic component was GH¢190.1 billion (37.8% of GDP) as at End-June 2022 and accounted for 48.3 percent of the total public debt. The external component was GH¢203.4 billion and represented 51.7 percent of the total.

Topmost priority of fiscal policy in 2022 and the medium-term

In November last year, the government indicated in the 2022 Budget that the topmost priority of fiscal policy in 2022 and the medium-term will focus on strengthening the credibility of “our fiscal consolidation programme and maintaining a good balance between the implementation of the revitalization and transformation programme and fiscal consolidation to promote growth within a stable macroeconomic environment”.

So far, the implementation of the 2022 Budget from Jan-June indicate that Government’s expenditure control measures have been largely successful despite significant fiscal constraints and mounting fiscal pressures, exacerbated by the less robust revenue performance for the period.

Provisional data on Government fiscal operations for January to June 2022 show shortfalls in revenue performance and a faster execution of expenditures. This resulted in an overall budget deficit of GH¢28,153 million (5.6% of GDP), against a programmed deficit target of GH¢19,730 million (3.9% of GDP).

The corresponding primary balance for the period was a deficit of GH¢7,676 million (1.5% of GDP), against a deficit target of GH¢672 million (0.1% of GDP).

Government is still engaging the International Monetary Fund (IMF) to get support to the tune of $3 billion to support its balance of payment but Singapore-based global research firm, REDD Intelligence, warned that the government’s reluctance to restructure external debt will affect its talks with the Fund.