In a recent discussion on the economic outlook of Ghana, Associate Professor Elikplimi Komla Agbloyor from the University of Ghana Business School sounded a stern warning regarding the country’s future foreign debt obligations.

Prof. Agbloyor emphasized the critical role that exchange rate stability plays in managing the nation’s debt burden, particularly as Ghana nears the end of its current International Monetary Fund (IMF) programme in 2026.

Prof. Agbloyor expressed concerns that Ghana’s external debt payments could become significantly more burdensome by 2027 due to exchange rate volatilities. He highlighted that a substantial portion of Ghana’s debt—approximately 61 percent—is denominated in foreign currencies, with the U.S. dollar being predominant. As such, any depreciation in the cedi’s value would necessitate an increased amount of cedis to service the same level of foreign debt, potentially exacerbating the country’s financial obligations.

“The future of Ghana’s debt payment schedule, post-IMF programme, looks daunting since the cedi has not shown any signs of long-term stability,” Prof. Agbloyor remarked. “There is a very high risk that in 2027, we will struggle to pay. We need to maintain exchange rate stability.” This insight underscores the urgent need for effective currency management to avoid a scenario where the gains from debt restructuring are nullified by exchange rate fluctuations.

The professor further explained that while debt restructuring initiatives, including bilateral and commercial debt arrangements, might reduce the nominal level of foreign debt, these benefits could be eroded if the cedi continues to depreciate. This depreciation would increase the cost of debt repayment in local currency terms, thereby straining the nation’s fiscal resources.

To mitigate these risks, Prof. Agbloyor urged the government to prudently utilize the fiscal space created by current debt restructuring efforts. He stressed the importance of channeling resources into productive economic activities that can foster growth and enhance the country’s capacity to meet its debt obligations. “A lot of the payments are going to be made in 2027. We do have some fiscal space now. That makes things easier now. We have some reliefs now. That has provided some space to put our house in order,” he stated.

Increase In Revenue Collection

Additionally, Prof. Agbloyor advocated for an increase in revenue collection to improve the country’s ability to manage interest payments on its debt. He warned that a scenario where low revenue generation coincides with high interest obligations could leave Ghana in a precarious financial position by 2027 and 2028, potentially forcing the country to seek further debt relief.

The professor also highlighted the need for prudent economic management and robust anti-corruption measures. He argued that significant funds could be saved and redirected towards economic growth initiatives if corruption is curtailed. This would ensure that the benefits of debt restructuring are not undermined by fiscal mismanagement and inefficiencies.

Echoing these sentiments, Professor Godfred Bokpin, a finance and economics expert at the University of Ghana, expressed skepticism about the real impact of the purported economic recovery. Prof. Bokpin pointed out that the economic downturn since 2021 has disproportionately affected the middle class, reducing their purchasing power and widening economic disparities. He noted, “The development we’ve seen from 2021 has actually impacted the middle class more and has dwarfed our purchasing power. If you measure 2017 purchasing power to this year, there’s been an enormous difference. So a lot of upper and lower middle class are sliding down.”

The combined perspectives of these experts underline the precarious nature of Ghana’s economic situation. As the country navigates its post-IMF programme era, the need for sound economic policies, stable currency management, and increased revenue generation becomes ever more critical. These measures are essential not only to safeguard against rising debt levels but also to promote equitable economic growth that benefits all segments of society.