Exchange rate instability could cause foreign debt levels to rise again by 2027 – Prof. Agbloyor warns

An Associate Professor in Finance at the University of Ghana Business School, Elikplimi Komla Agbloyor has cautioned that the country could be paying more to retire its external debt if government resumes the payment of loans after 2026 due to exchange rate volatilities.

He explained that more than half of Ghana’s debt was contracted in foreign currencies, particularly the U.S dollar, which will require that more cedis be needed to pay such debt if the exchange rate continues to deteriorate.

Speaking on the Super Morning Show on Joy FM, July 31, 2024, Prof. Agbloyor told the host, Winston Amoah that the future of Ghana’s debt payment schedule, post the International Monetary Fund (IMF) programme looks daunting since the cedi has not shown any signs of long term stability.

“There is a very high risk that in 2027, we will struggle to pay. We need to maintain exchange rate stability. Currently, about 61 percent of our borrowing is in foreign currency, only 39 percent is domestic currency. Consequently if the cedi keeps depreciating, we will struggle to pay the loans”, he cautioned.

He pointed out that even though the foreign debt level may come down due to bilateral and the commercial debt restructuring exercises, the effect could be largely negated if more cedis are needed to pay the same debt in 2027 as result of poor exchange rate management.

Stressing on the need to keep a stable currency, Prof. Agbloyor advised that the fiscal space created by the debt restructuring now must not be abused, but properly utilized to create activities that can grow the economy to pay for the debt.

“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 said.

Providing some more solutions, he advocated an increase in revenue to improve interest payment on debt.

According to Prof. Agbloyor a low revenue collection against high interest payment on loans could mean the country will still be debt distress by 2027 and 2028.

This, he said could send the country back to begging for debt forgiveness if the economy does not grow to the predicted levels.

He advised government to pursue prudent economic measures that will reduce corruption and not erode the gains that will be made from the debt restructuring.

Prof. Agbloyor argued that more funds could be saved and channeled into economic expansion if corruption is largely reduced.

On the same programme, a finance and economics expert at the University of Ghana, Professor Godfred Bokpin, also questioned the government over the real magnitude and impact of the supposed economic recovery.

According to him, the current economy has disproportionately affected the middle class, significantly reducing their purchasing power.

He further highlighted the widening economic disparity accompanying the country’s growth.

“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,” he said.