Ghana’s stock of public debt continues to rise despite warnings from major international and multinational institutions such as the World Bank and the IMF on the need to exercise some fiscal restraint to curtail any debt service challenges on the country. According to data from the Bank of Ghana, the country’s nominal debt stock rose by GH¢27.8 billion between April and May this year.
Specifically, the new data show that gross public debt rose from GH¢304.6 billion at End-March 2021 to GH¢332.4 billion at End-May 2021. Correspondingly, the debt stock as a percentage of the country’s Gross Domestic Product (GDP) currently stands at 76.6%, up from 70.2% in March 2021.
Meanwhile, compared to the corresponding period in 2020, the debt stock increased by GH¢76.4 billion, representing a year-on-year growth of 29.8%. In May 2020, the country’s stock of public debt was GH¢256 billion, accounting for 66.8% of GDP, which was below the sustainability threshold of 70% at the time.
Debt components
A Further breakdown into the two major components show that domestic investors still continue to hold the majority of the country’s debt. At End-May 2021, external debt stock stands at GH¢161.5 billion, representing 37.2% of GDP, up from GH¢141.0 billion in March 2021. Compared to May 2020, external debt rose by GH¢26.3 billion, representing a year-on-year growth of 19.5%.
On the other hand, domestic debt rose from GH¢163.6 billion in March 2021 to GH¢170.8 billion at the end of May 2021, currently accounting for 39.4% of GDP. Meanwhile, a year ago, domestic debt component stood at GH¢120.8 billion, accounting for 31.5% of GDP.
The rising stock of public debt raises concerns about the ability of the country to sustain its debt, should another shock, just like COVID-19 emerges. Currently, the debt stock is above the sustainability threshold of 70% with Ghana classified as being at high risk of becoming a debt distress nation. Whilst this may shy away prospective investors, it also means that the country is too risky to invest and hence creditors will charge higher interest rates on their loans. This will further compound the already high debt serving cost to the nation.
Revenue mobilization
Already revenue mobilization has been a major challenge for successive governments. However, the current government through the collaboration with the Ghana Revenue Authority is leveraging digitization to improve revenue collection whilst reducing the risk of corruption in revenue administration. At End-May 2021, total revenues including grants accounted for just 5.2% of GDP compared to total expenditure of 9.8% of GDP.
This resulted in the worsening of the country’s overall deficit which rose from 2.8% of GDP at the end of March this year to stand at 4.6% of GDP at End-May 2021. This further casts doubt on the government’s target of returning to its medium deficit target of 5% of GDP at the end of the year.
The rising debt stock raises concerns as more and more of the country’s meagre revenues are being used to service debt. Whilst crossing the sustainability threshold may be worrying, of major concern is the fact that about 49.5% of government’s budget revenues for 2021 will be used to service interests on loans. The situation becomes more worrying when compensation of employees is added to the interest payments, these two components thus account for 91.3% of the projected total revenues and grants for 2021.
In the current situation, the government needs to explore other avenues of mobilizing domestic resources to fund its activities. Taxing may not be an option because the newly introduced taxes are having significant tolls on individuals and businesses alike.
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