Ghana’s growth rate to dip by 2% if external debt crosses 60% of GDP – Analyst warns
Ghana’s Gross Domestic Product (GDP) growth rate according to analyst and founder for the Institute for Security Studies (ISS), Dr Jackie Cilliers will fall by 2 percent if the country’s external debt composition crosses 60 percent of its GDP.
Ghana’s total debt stock as at March 2021 was Ghs 304.66 billion, but the debts tock then increased by Ghs 27.8 billion in the space of two months to reach Ghs 334 billion (77.1 percent of GDP) in May this year.
The external composition of the nation’s debt stock in the two months period increased by 4.7 percent from 32.5 percent in March to the current 37.2 percent in May according to available data by the Bank of Ghana.
In monetary terms, this translates into Ghs 161.5 billion ($28.1 billion).
With regards to the domestic component of the debt stock, domestic debt increased marginally from 37.7 percent in March to 39.4 percent in May, translating into some Ghs 170.8 billion at end-May 2021.
Making the assertion in his book titled Challenges and Opportunities: The Future of Africa, Dr Cilliers notes that similar to the 1980s, debt as resurfaced as a serious challenge to the country and the African continent at large.
“Debt has also resurfaced as a serious challenge. In a wide-ranging study on the relationship between debt and growth Carmen Reinhart and Kenneth Rogoff concluded: ‘When external debt reaches 60 percent of GDP, annual growth declines by about two percent’.
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“On average, Africa’s low and low and middle-income countries consistently had debt levels in excess of 60% of GDP from the mid-1980s for almost two subsequent decades, levels that clearly contributed to slow growth.
After 2011, when commodity prices declined, commodity exporters such as Angola, Chad, Republic of Congo, Niger, Nigeria and Zambia were the first to be particularly badly affected.
“A larger liquidity crunch, delays in the start of natural resource production, and weaknesses in revenue administration contributed to large increases in debt in Benin, Cameroon, Djibouti, Ethiopia, Ghana, Kenya, Senegal, São Tomé and Princìpe, Rwanda, Togo, Uganda and Zimbabwe,” he stated in his book.
Touching on high-interest rates on loans which has now become the biggest expenditure of the Ghanaian government as well as other African governments, Dr Cilliers opined that, this is as a result of a shift in debt away from the concessional loans provided by the World Bank and IMF to non-concessional and commercial loans which offer shorter maturities and grace periods.
