Fmr Finance Minister Advocates Prudent Borrowing Amid Resumed Eurobond Payments; Proposes Sinking Fund to Mitigate Future Debt Crises
Former Finance Minister Seth Terkper has identified the domestic impact of Ghana’s debt restructuring as a critical challenge facing the economy, following the country’s resumption of Eurobond debt servicing.
Speaking at a media dialogue with business journalists on Tuesday, on the “Prospects for the Economy after Agreement with International Lenders and the IMF 3rd Review,” Mr Terkper highlighted the strain placed on both foreign and local investors, many of whom were hit by the two rounds of debt haircuts that have characterized the government’s restructuring efforts.
He noted that confidence in the government’s bonds had been strong among Ghanaians when sovereign debt was opened up to domestic buyers, but the recent exchange—though framed as an external debt restructuring—has left a significant portion of local investors facing severe losses.
The resulting pressure on household balance sheets reflects the broader fiscal difficulties confronting Ghana, which is now seeking to stabilize after years of debt accumulation.
Mr Terkper argued that despite widespread criticism of further borrowing, Ghana must continue to raise capital for critical infrastructure projects. However, he stressed the need for a more disciplined approach to debt management, warning that the country must avoid the risk of entering a prolonged debt trap, similar to other nations that have struggled for decades to regain market access.
The former minister also pointed to inefficiencies in Ghana’s tax system as a further hindrance to fiscal sustainability. He criticized the reliance on short-term, piecemeal tax increases, such as the lingering COVID levy, which has remained in place despite the pandemic’s end.
He therefore called for a more comprehensive overhaul of tax policy, arguing that a broader base and lower rates could boost revenue without pushing businesses and individuals into further debt.
Ghana’s recent return to Eurobond payments, following the restructuring of $13 billion in liabilities, marks a pivotal moment for the economy. The government has resumed coupon payments, which were suspended in 2022, and paid $520 million in total, including $120 million in consent fees to incentivize bondholders. The move is seen as an essential step in rebuilding investor confidence.
Mr Terkper has, however, warned that Ghana must now focus on structural reforms, suggesting that the government establish a Sinking Fund to manage future debt obligations and avoid the need for emergency borrowing in times of crisis.
Such a fund could help mitigate the risks of relying too heavily on volatile revenue streams, such as cocoa, which has faced setbacks due to poor weather conditions.
In his remarks, Mr Terkper underscored the need for a long-term strategy, encompassing both fiscal reform and better planning for cyclical economic shocks. He called for the implementation of a counter-cyclical approach, urging policymakers to create buffers in times of growth to cushion the impact of future downturns.
As Ghana navigates its way through the aftermath of the debt restructuring, the former minister’s remarks underline the challenges ahead, particularly in restoring market access and ensuring sustainable economic recovery.
