Government debt-to-GDP ratio of 82% challenging – IEA

The Institute of Economic Affairs (IEA) has expressed worry about the aggressive borrowing by the government on the domestic debt market, especially from the short end of the market where investor appetite is high.

According to its July-August 2024 Economic Outlook, it said the domestic component of the debt has increased by as much as GH¢32.7 billion or 12.7%, from GH¢257.3 billion to GH¢290.0 billion in the year to June 2024, whereas the external component has increased only marginally by US$0.9 billion or 0.3% from US$30.1 billion to US$31.0 billion.

The IEA pointed out that since the government currently lacks access to the international bond market, it is understandable that it is only borrowing from the domestic market.

Nonetheless, it advised that the borrowing is closely monitored and controlled, so that it does not get out of hand and land the country into another major debt crisis.

As of end of June 2024, Ghana’s public debt stood at GH¢742.0 billion. This represents a year-to-date increase of GH¢133.6 billion or 22.0%.

The debt in dollar terms was US$50.9 billion, lower than US$52.2 billion at the end of December 2023, as a result of the effect of the sharp increase in the cedi/dollar rate on the domestic component.

In Gross Domestic Product terms, the debt was 70.6% at the end of June 2024 compared to 72.3 % at the end of December 2023. This is due to the much higher nominal GDP in 2024 compared to 2023.

In the Economic Credit Facility programme, the public debt is projected at 82.5% of GDP for 2024 [IMF Executive Board’s Second Review of Ghana’s ECF, June 28, 2024].

IEA said the projected figure is surprisingly high since the envisaged debt restructuring and fiscal consolidation under the ECF are supposed to place the debt on a declining path, reaching what is regarded as a sustainable level of about 56% by 2028.

“It is not clear whether this sustainable target is still attainable”, it concluded.