Not an easy road ahead for Ghana’s next government: Navigating the debt burden

Ghana’s economy is in a precarious state, largely due to the mismanage­ment of financial and economic policies over the past years. As the current president’s tenure comes to an end in December 2024, following the general elec­tions, the incoming government will face a significant challenge: managing the country’s mount­ing debt burden.

The current debt situation

Ghana’s public debt has escalated dramatically, increas­ing by GH¢47.4 billion in just the first two months of 2024, bringing the total to GH¢658.6 billion. This staggering amount represents 62.7 per cent of the country’s Gross Domestic Product (GDP) as of February 2024. Specifically, the exter­nal debt stands at GH₵380 billion, equivalent to 36.1 per cent of GDP. These figures, reported by the Bank of Ghana in its May 2024 Summary of Economic and Financial Data, underscore the gravity of the fiscal crisis.

Debt restructuring: A step forward or just a deferment?

An agreement in principle (AIP) has been reached to restructure a substantial portion of Ghana’s debt, amounting to $13.1 billion. This milestone has been hailed as a significant step towards economic recovery, with analysts recognising it as a major achievement given the country’s fiscal constraints. The restructuring process, which began 18 months ago, has been swift by international standards, reflecting the urgency of Gha­na’s financial predicament.

However, the AIP raises questions about its long-term sustainability. While it offers immediate debt relief and a foundation for future growth, there are concerns that it may merely defer the problem, post­poning the burden to future administrations.

The journey so far

Ghana’s journey to debt restructuring has been fraught with challenges. The country defaulted on its international debt in December 2022, ceasing payments to international credi­tors due to financial constraints. By March 2023, the govern­ment had engaged with interna­tional bondholders to negotiate a resolution. This led to an agreement in principle with bilateral creditors in January 2024, followed by formal talks with international bondholders in March 2024.

The domestic debt restructur­ing, totalling GH¢203 billion, alongside the bilateral debt agreement involving GH¢5.4 billion deferred to 2026, and the commercial debt restructuring of $13.1 billion, underscore the government’s comprehensive approach to addressing the fiscal crisis. However, these measures reflect the immense burden borne by Ghanaians due to the mismanagement of the economy. The people have faced severe economic hard­ship, with no accountability from those responsible for the mismanagement. Despite the restructuring, which reported­ly saved GH¢61 billion from domestic debt exchange, $2 billion from bilateral debt, and $4.7 billion from commercial debt, the cost of these financial manoeuvres has been dispro­portionately shouldered by the citizens, who continue to endure economic instability, uncertainty and cost of living crisis.

Risks and uncertainties ahead

Despite these efforts, signif­icant risks and uncertainties remain, especially given the current government’s track record in financial and eco­nomic management. With the upcoming elections, there is a heightened risk of overspend­ing, which could undermine fiscal discipline and stability. The new government will inher­it a complex financial landscape, necessitating careful manage­ment to avoid further crises.

1. Market conditions and volatility: Fluctuating market conditions could impact the success of the debt restructur­ing. The new government must navigate these uncertainties to ensure economic stability.

2. Legal and regulatory chal­lenges: Potential legal disputes and regulatory hurdles could impede the implementation of the debt restructuring agree­ment, requiring robust legal frameworks and proactive management.

3. Stakeholder compliance and cooperation: The coopera­tion of all stakeholders, includ­ing international creditors and domestic entities, is crucial for the successful implementation of the restructuring plan.

4. External economic factors: Global economic conditions and commodity prices will significantly influence Gha­na’s recovery trajectory. The new government must remain vigilant and adaptive to these external factors.

Financial obligations and future borrowing

The restructured debt obli­gations that Ghana faces in the coming years are substantial. Initial payments and interest bonds span from 2024 to 2030, with 2024 alone requiring payments amounting to $181 million. While this figure might seem manageable in isolation, the source of these funds re­mains a critical concern amidst an economy already stretched thin.

Without the recent debt restructuring efforts, Ghana would have faced a staggering half a billion dollars in pay­ments by 2025. This amount would have been an insur­mountable challenge for any administration, underscoring the precarious financial situa­tion the country is in.

Despite these restructuring efforts, which were aimed at providing some breathing room, Ghana has continued to incur additional debt—amount­ing to at least $2.69 billion since 2022. This continued borrowing, while essential for maintaining state functions and public services, further exacer­bates the financial burden on the nation. Each new loan adds another layer of complexity to the already daunting task of managing the country’s debt.

For the incoming govern­ment, this presents a critical challenge: how to effectively manage both the restructured debt and these new financial obligations without falling back into a cycle of debt crises. It will require a delicate balance of fiscal discipline, innovative financial management, and per­haps most crucially, the rebuild­ing of trust with international creditors and the Ghanaian public alike.

The government must not only find sustainable ways to meet these financial commit­ments but also ensure that the economic policies implemented do not further strain the coun­try’s financial stability. This in­cludes identifying new revenue streams, optimising expenditure, and potentially renegotiating terms where possible to miti­gate the risk of another debt restructuring scenario.

Moreover, the broader economic environment must be conducive to growth. This involves not just fiscal and monetary policies but also structural reforms that can enhance productivity and eco­nomic resilience. Addressing the underlying causes of the debt crisis—such as economic mis­management, corruption, and inefficiencies—will be crucial in preventing a recurrence.

Looking forward

As Ghana prepares for a new administration post-2024, the incoming government must adopt robust economic strate­gies to navigate the debt burden and ensure sustainable growth. This includes leveraging inter­national support, implementing fiscal discipline, and fostering economic resilience to prevent future financial crises.

The road ahead is challenging, but with careful management and strategic planning, Ghana can overcome its current fiscal difficulties and pave the way for a more stable and prosperous future.