8.5% GDP growth rate to help Ghana return to debt sustainability -Report
Ghana’s return to the path of debt sustainability is heavily hinged on the country’s ability to grow at an additional 3.5% over the projected 5% for this year.
This is per the report released by the Economic Governance Platform (EGP).
The herculean projected growth rate for the country is based on the country’s sustainability index of 3.5 percent for this year.
“With the measured sustainability index of 3.5% in 2021, Ghana requires to grow the economy at 3.5% over the current levels of projected 5% to be able to return to debt sustainability,” asserts the report.
Speaking during a presentation at the commissioning of the report, Policy Analyst with the Integrated Social Development Centre (ISODEC), Felix Anaba, affirming the country’s inability to grow at the targeted rate of 8.5 percent for this year, however, noted that with additional growth of 3.4 percent over the medium with debt levels remaining constant, Ghana can return to the path of debt sustainability.
“At current levels of growth, Ghana must increase its annual GDP growth by about 3.4% annually to be able to return to debt sustainability,” he stated.
Presently, Ghana’s debt as a proportion of Gross Domestic Product (GDP), amounts to Ghs 332 billion representing 76.1 percent of GDP and above the required 70 percent debt-to-GDP threshold.
With the current debt situation, the IMF has described Ghana as a country at high risk of debt distress and could possibly slip into debt distress.
According to the IMF, Ghana’s debt stock is expected to continue on an elevated path reaching 81.5 percent this year, 83.2 percent in 2022, and further to 84.8 percent, 86.0 percent and 86.6 percent in 2023, 2024 and 2025 respectively.
Commenting further on the country’s debt levels in his presentation, Mr Anaba noted that growing tax revenues to between 5 percent and 6 percent to reach between 19 percent and 21 percent of GDP can help the country achieve debt sustainability in the medium term as the country will be able to easily service its debts.
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According to the report, Ghana’s rebound from the debt crises in the early 2000s gave the country some relief and with the discovery of oil and gas resources in 2007, Ghana’s appetite for loans for rapid economic growth out of poverty grew further. Between 2006 and 2013 Ghana’s GDP per person grew by 44%.
Loans increased steadily from 2008 to 2011, and in 2011, Ghana achieved one of its highest GDP growth rates (14%) ever on the back of its new found oil and gas resources. This rapid economic growth led to an increased willingness and desire of external institutions to lend to Ghana, with a corresponding willingness to borrow to for development. Between 2007 and 2015 Ghana contracted about $18.2 billion of external loans and about $9 billion of debt payments in the period.
The report also notes that the country had consistently run growth deficits since 2011 with the worse performance coming with negative primary balances of Ghc -3,834 (million) in 2016 and Ghc -3,214 (million) in 2020 respectively.
Also adding that the pandemic is a major source of new debt for the Ghanaian economy as the COVID-19 pandemic cost to the Ghanaian economy about 8.8% of GDP, amounting to about GH¢ 38,164.2 million (US$ 6.4 billion) in 2021.
The report further notes that the IMF in 2021, estimates that the external public and publicly guaranteed (PPG) debt-to-GDP ratio of Ghana is expected to remain above threshold until 2029 with debt remaining particularly vulnerable to growth and trade shocks.
The main drivers of the country’s debt the IMF further posits is revenue and expenditure shocks associated with the pandemic which have compounded the impact of fiscal slippages and the realization of contingent liabilities in finance and energy sectors.