Ghana on a narrow path to debt sustainability – World Bank
Ghana, according to the World Bank, is on a narrow path to debt sustainability.
The assertion by the Bretton Wood Institution is due to the country’s ballooned debt which currently stands at 78.9% of Gross Domestic Product (GDP).
According to the World Bank, the country’s high public debt which makes Ghana at high risk of debt distress, high fiscal deficits, low revenue mobilisation and other structural challenges to stabilizing the macroeconomic framework, is making it difficult for the country to achieve debt sustainability.
In its Country Partnership Framework (CPF) developed for Ghana, the World Bank asserts that Ghana’s structural challenges to stabilize the macroeconomic framework, ensure debt sustainability and address chronic energy sector fiscal risks has been further magnified by the Covid pandemic.
The Bank notes that achieving debt sustainability and reversing the current macroeconomic trends will require significant and resolute structural reforms over time.
Adding that failure to do so could undermine the country’s post Covid-19 recovery and medium-term development ambitions.
“The pandemic magnified the urgency for Ghana to address pre-existing structural challenges to stabilize the macroeconomic framework, ensure debt sustainability, and address chronic energy sector fiscal risks. Public debt ballooned in 2020, reaching 78.9 percent of GDP2 while the fiscal deficit rose to 15.2 percent of GDP (including energy and financial sector costs).
“Ghana is at high risk of debt distress with a narrow path to debt sustainability. Weak management of State-Owned Enterprises (SOEs), particularly in the energy sector, has led to chronic operational losses and the accumulation of large liabilities. Reversing these trends will require significant and resolute structural reforms over time.
“Rebuilding fiscal buffers is central to improving macroeconomic stability, expanding public and private investment and improving service delivery. Failing to do so could undermine Ghana’s post COVID-19 recovery and medium-term development ambitions,” remarked the Bank.
Ghana’s high public debt coupled with high fiscal deficits and low revenue mobilisation as a percentage of GDP has resulted in the country’s loss of access to the capital markets and a downgrade of its credit rating as well as high yields on its bonds.
Touching on the country’s high dependence on natural resources, the Bank averred Ghana’s dependence on natural resource and gaps in fiscal governance are likely to create economic volatility, impact macroeconomic management and elevate cost of finance to the private sector.
“High natural resource dependence and gaps in fiscal governance are likely to create economic volatility, impact macroeconomic management and elevate the cost of finance for the private sector. Export concentration (in gold, cocoa, and petroleum) has exposed the economy to fluctuations in global commodity prices.
“High fiscal deficits and increasing public debt have elevated Ghana’s country risk, limited FDI in non-commodity sectors, and increased the cost of finance for private businesses.
“Strong growth and a concerted fiscal consolidation program between 2015 and 2018 helped narrow the fiscal deficit and restore macroeconomic stability. However, the reform momentum started to wane in 2018, with financial and energy sector costs contributing to fiscal pressures,” said the World Bank.
Ghana to benefit from $4.5bn World Bank Country Partnership Framework
The World Bank Group together with the International Finance Corporation and Multilateral Investment Guarantee Agency (MIGA) have prepared a $4.5bn Country Partnership Framework (CPF) for Ghana.
The CPF estimated to last for five years – 2022 to 2026 – will prioritize investments in human capital, job creation, economic diversification, building a resilient health system and fostering a greener and more inclusive society.
The CPF will support Ghana in its COVID-19 and medium-term development agenda. It is designed around three mutually reinforcing focus areas, namely: Enhancing Conditions for Private Sector Development and Quality Job Creation; Improving Inclusive Service Delivery; and Promoting Resilient and Sustainable Development.
“The World Bank Group is happy to support Ghana’s economic recovery plan. The CPF is aligned with Ghana’s Coordinated Program of Economic and Social Development Policies and will support the Government of Ghana in creating a competitive environment for the private sector to flourish and play a greater role in job creation particularly for youth,” said Pierre Laporte, World Bank Country Director for Ghana, Liberia and Sierra Leone.
“The World Bank Group, through the CPF, will also support policies and programs that aim to strengthen digital transformation for improved service delivery and productivity, improve governance, and promote greater inclusion, including strengthening women’s economic empowerment,” he added.
