Ghana to use 3.3% of GDP to service external debts this year – Fitch Ratings
Ghana is expected to use about 3.3% of its Gross Domestic Product (GDP) to service its external sovereign debt this year.
This is according to international credit rating agency, Fitch Ratings.
In its assessment of the economy which led to the downgrading of Ghana from B to B- with a negative outlook, the rating agency asserts government will use approximately $2.7 billion (3.3% of GDP) in interest and amortization payments in 2022.
Assessing the country’s ability to service its external debts, Fitch Ratings noted that Ghana, given that it was able to service it’s $3.5 billion external debt in 2021, will also be to service its external debt this year.
This, it noted, can be done without going to the international capital market for loans.
“We forecast that Ghana will face approximately USD2.7 billion (3.3% of GDP) in sovereign external interest service and amortisation payments in 2022. We believe that the government can meet its external debt servicing without market access given its reserves, which we estimate at USD7.9 billion at end-2021 (3.2 months of current external payments).
“Reserves were bolstered by USD3 billion in Eurobonds in 2Q21, which helped the government to meet its approximately USD3.5 billion (4.7% of GDP) in sovereign external debt servicing costs last year, and by the USD1 billion IMF SDR allocations,” it said.
Touching on Ghana’s fiscal deficit for this year, the rating agency projected an end-year fiscal deficit of 9.1% for 2022, 3.4% below the 12.5% fiscal deficit it asserts Ghana ended with in 2021.
“Fitch forecasts the general government fiscal cash deficit to narrow to 9.1% of GDP in 2022 from 15.1% in 2020 and 12.5% in 2021 (including 3% of GDP in domestic arrears clearance and payments related to the state-owned energy sector).
“The 2022 deficit would still be more than twice the 2022 ‘B’ median of 4.6% and risk to public finances remain high. The government envisages a deficit (including financial and energy sector support) of 7.4% in 2022 and 5.5% in 2023, with a fall to below the legal deficit ceiling of 5% in 2024,” it added.
External debt service payments increased by 26.8% in Q2 2021
Debt service payments (principal and interests) on publicly-guaranteed external debts for the second quarter of 2021 the Bank of Ghana notes, amounted to $545.39 million.
According to the BoG, the amount was $115.27 million (26.8%) more than the payment of $430.12 made in the first quarter of 2021, adding that it is, however, $2.26 million (0.4%) lower than the payment of $547.65 million made in the second quarter of 2020.
Payments in the review quarter, the Central Bank asserts in its Q2 2021 Quarterly Bulletin, comprised the principal repayment of $285.30 million and interest expense of $260.09 million.
The multilateral group of creditors were paid $27.59 million in principal repayments, and interest payment of $16.28 million in Q2:2021, compared with principal repayments of $27.24 million and interest payments of $14.87 million made in Q2 2020.
The bilateral creditors received $43.53 million in principal repayments and $5.72 million in interest payments in the review period, compared with US$34.01 and $7.63 million paid as principal and interest, respectively, in Q2:2020.
Commercial creditors were paid $240.70 million in Q2:2021, made up of principal repayments of $214.18 million and interest payments of $26.51 million. These compared with principal repayments of $209.75 million and interest payments of $42.58 million for the same period in 2020.
In addition, a coupon payment of US$211.58 million was made on outstanding Eurobond debt in the review quarter, which was the same as the coupon paid in the corresponding period of 2020.
Meanwhile, interest payments on external loans alone by Ghana according to the World Bank’s International Debt Statistics report stood at $937 million at the end of 2020.
According to the report, interest payments made by Ghana at the end of 2020 represents some 876 percentage points increment in interest payments by the country.
The report reveals that interest payments by Ghana in 2010 amounted to $96 million, but by the year 2020, interest payments on external loans had jumped to $937 million.
The World Bank report further revealed that external debt in real value terms had more than tripled from the period between 2010 to 2020.
