Accumulation of Debt continues to be one of the major problems facing the country over the years and has continued to rise despite government’s commitments to reduce borrowing and to ensure fiscal consolidation.

Recent data presented by the Finance Minister, Ken Ofori-Atta, show that government of Ghana has accumulated a total of GH¢5.9 billion as debt between August and September 2021. As of End-July 2021, Ghana’s Gross Public Debt was GH¢335.9 billion which represented 76.4 percent of the country’s GDP but has since risen to GH¢341.8 billion as of End-September 2021. In percentage terms, the debt stock has risen by 1.8 percent between August and September 2021.

“The provisional nominal debt stock, including financial sector bailout costs and energy sector IPPs payments, stood at GH¢341,762.7 million (US$58,239.8 million) as at End-September 2021, from End-December 2020 stock of GH¢291,630.7 million (US$50,832.4 million). Expressed as ratios of nominal GDP, the End-September 2021 debt stock was 77.8 percent when the cost of the financial sector bailouts and energy sector IPP payments are included, but 72.0 percent when they are excluded”.
Ken Ofori-Atta

Despite the rise in the debt stock, Hon. Ofori-Atta told Parliament that “the elevation in the debt stock in 2021 arising from the impact of the COVID-19 pandemic seemed to be stabilizing as at End-September 2021”. According to him, without any further large issuances expected to take place before the end of the year, “we expect a tapering of the debt dynamics”.

Debt components

Providing a breakdown of the debt, Mr. Ofori-Atta stated that the composition of public debt comprised external debt of GH¢163,652.2 million (US$27,888.0 million) and domestic debt of GH¢178,110.5 million (US$30,351.8 million). This represented a foreign-domestic share split of 47.9 percent and 52.1 percent, respectively.

A report from the Bank of Ghana showed that the majority of the country’s domestic debt is held by the banking sector. According to the BoG, the proportion of banks’ funds allocated to Government securities increased significantly to 53.9 percent in Q2 2021, up from 45.5 percent recorded in Q2 2020. The BoG attributed this to “an increase in the proportion of funds flow to investments in both short-term and medium- to long-term securities”.

This demonstrates the continuous crowding-out of private sector investment due to the Commercial Banks’ growing appetite to hold government securities. Major international institutions, especially the IMF, have cautioned against this practice, which they believe, has devastating impacts on the growth of the economy.

Low revenue mobilization

One of the major reasons why the government continues to borrow is the inability to mobilize enough revenues to undertake its developmental projects and also meet growing recurrent expenditures which have been heightened by the pandemic.

Total Revenue and Grants for the first three quarters of 2021, Mr. Ofori-Atta said, amounted to GH¢47,235 million (10.8% of GDP), against the revised target of GH¢51,314 million (11.7% of GDP) for the period. This meant the government missed its revenue target by GH¢4,079 million in the first 9 months of the year.

Due to the high borrowing, government continues to spend a chunk of its meagre revenues on interest payments. Data presented by the Finance Minister showed that Interest Payment was marginally above the target for the first 9 months by 0.9 percent, totaling GH¢25,394 million against a revised target of GH¢25,158 million.

Of this amount, domestic interest payment amounted to GH¢20,576 million, 4.9 percent higher than the revised target, while external interest payment of GH¢4,818 million was below the programme for the period by 13.2 percent.

Addressing fiscal challenges

In lieu of the country’s fiscal challenges, Hon. Ofori-Atta told Parliament that a key focus of the 2022 budget was fiscal consolidation to enhance debt and fiscal sustainability. According to him, “it is for this reason that Government is proposing for the consideration and approval of Parliament the revenue enhancing and expenditure rationalization measures in this budget”.

The Finance Minister was hopeful that the approval and implementation of the measures will lead to significant fiscal adjustment from a projected fiscal deficit of 12.1% of GDP in 2021 to 7.4% in 2022, representing an adjustment of 4.7 percentage points in just one year.