Ghana could have saved USD$558.10 million between May 2020 and June 2021 if the country had opted for the Debt Service Suspension Initiative (DSSI). This means it would have deferred the payment of this amount of debt obligations due for payment within this period.

According to data from the International Monetary Fund (IMF), Ghana’s potential DSSI savings amounted to USD$377.90 million between May and December 2020, accounting for 0.6% of the country’s GDP. Also, Ghana could have suspended the payment of debt and interest payments to its bilateral creditors to the tune to USD$180.20 million in the first half on 2021, 0.3 percent of the country’s GDP.

The aim of the DSSI is to help countries to concentrate their resources on fighting the pandemic and safeguarding the lives and livelihoods of the most vulnerable people across the globe.

In the case of Ghana, the government indicated that its COVID-19-related expenditure in 2020 amounted to GH¢21 billion. Moreover, data from the Bank of Ghana, COVID-19-related expenditures exceeded the target of GH¢271.4 million by 156.1 percent in the first quarter of 2021. Currently, Ghana’s stock of public debt stands at GH¢304.6 billion at End-March 2021, representing 70.2% of GDP. At the current level, the country’s debt is marginally above the 70% sustainability threshold.

Rising interest payments

Despite the rising nominal debt, of major concern is the rise in interest payments on loans contracted by the country. In the first three months of the year, interest payments totaled GH¢8,286.6 million and was 7.0 percent below the programmed target. A further breakdown shows that domestic interest payments accounted for 80.9 percent of the total interest payments and registered a year-on-year growth of 27.5 percent. External interest payments accounted for the remaining 19.1 percent and recorded a year-on-year growth of 37.5 percent.

Meanwhile, Ghana is part of the 73 countries that are eligible for a temporary suspension of debt-service payments owed to their official bilateral creditors. The suspension period, originally set to end on December 31, 2020, has been extended through December 2021.

Currently, Ghana’s overall debt position is described as high, same as its external debt position. As such, some experts have urged the government to participate in the DSSI. Ghana would have benefited from this initiative if the call by G20 for private sector participation has yielded the desired results. This is because majority of the country’s debt is held by private individuals.

At End-March 2021, domestic debt was GH¢163.6 billion, representing 37.7% of GDP and also accounting for 53.7% of the overall debt stock.

The DSSI

Suspension of debt payments may have saved some resources but this wouldn’t have been much to cater for the rising COVID-19 induced expenditures. Moreover, these may have impacted on the debt markets and affect the country’s credit ratings, especially when the private is also participating.

Also, some creditors may decide to charge interests on the debts falling due within this period on the suspension initiative. This may have worsened the country’s plight of using a chunk of its revenues to service its debt and interest on debt.

The World Bank and the International Monetary Fund urged G20 countries to establish the DSSI to help the world’s poorest countries mitigate the impact of the pandemic. Since it took effect on May 1, 2020, the initiative has delivered more than $5 billion in relief to more than 40 eligible countries.

Meanwhile, DSSI borrowers commit to use freed-up resources to increase social, health, or economic spending in response to the crisis. They also commit to disclose all public sector financial commitments involving debt and debt-like instruments.

Moreover, participating countries commit to limit their non-concessional borrowing to levels agreed under IMF programs and the World Bank’s non-concessional borrowing policies.