Investors worried over Ghana’s high public debt

On October 22, 2021, 10:06 AM

The continuous rise in Ghana’s high levels of public debt remains a concern for investors, and this may not change in the years ahead, ratings firm, Fitch Solutions, has observed.

The Fitch Solutions fourth quarter 2021 Country Report, noted that a sustained fiscal deficit – albeit a moderately narrowing one – would see the country’s debt stock continue to rise over the coming years.

However, as a proportion of Gross Domestic Product (GDP), it should stabilise this year, and then gradually reduce in the medium to long term.

“We are confident that Ghana will see somewhat narrower fiscal deficits and slower growth in public borrowing in the medium-to-long term. This will bring the debt burden down somewhat as a percentage of GDP relative to the early 2020”.

“While a large debt load in itself is not a direct threat to financial stability, we do not rule out the debt load causing some problems over the long term due to the high-interest payments the debt entails”, it further said.

Expenditure remains high

The report revealed that expenditure would remain elevated in the coming months, and rise from 24.7% of GDP in 2020 to 25.6% (114.6bn) in 2021.

Public sector salaries and benefits would remain the largest non-interest expenditure item, followed by grants to other government units. The government expects the public sector wage to rise by 7.2% to 30.3bn in 2021.

However, Fitch Solutions anticipate the growing political pressure for larger pay increases as evidenced by threats in late July of nationwide strike action by university staff over pay demands, to result in higher-than expected expenditure.

The budget also includes funding for the second phase of the government’s Ghana CARES ‘Obaatan Pa’ coronavirus support and recovery scheme, which includes funding to develop public healthcare capacity, procure vaccines, and provide support for local communities and businesses.

These measures would come at the expense of general procurement expenditure, and capital expenditure (capex), funding for which will both be trimmed in 2021. Capex is likely to fall from 12.1% of total expenditure to 10.2% in 2021.

Meanwhile, Fitch Solutions said the budget deficit would narrow further in 2022, albeit to a still-wide 7.6% of GDP, adding that, “we expect that as economic conditions normalise further in 2022, revenues would continue to recover and rise to 15.9% of GDP.

“Expenditure growth will moderate – in line with the government’s medium-term fiscal consolidation objectives – and consequently, we forecast total spending falling as a proportion of GDP to 23.5%,” the ratings firm stated.

World Bank Projects Public Debt To Hit 81.1% Of GDP In 2023

Story By Norvanreports.com