Debt crisis far from over despite successful debt exchange programme – Terkper warns
Ghana’s debt crisis is far from over, despite the recent successful execution of the domestic debt exchange programme, warns former finance minister Seth Terkper. According to Terkper, any suggestion that the country is out of the woods following the debt exchange would be disingenuous, as there is still much work to be done in order to secure a bailout from the International Monetary Fund (IMF).
Speaking to journalists on Wednesday, Terkper noted that while the debt exchange programme may have provided some relief in the short term, it does not address the underlying issues that led to Ghana’s debt crisis in the first place. He cautioned against simply making coupon payments to pensioners and bondholders, without taking steps to restructure the country’s finances in a more sustainable manner.
Terkper’s concerns are not unfounded. Ghana’s debt-to-GDP ratio has soared in recent years, rising from around 32% in 2012 to over 76% in 2021. The COVID-19 pandemic has only exacerbated this trend, with the government borrowing heavily in order to fund its response to the crisis. This has left Ghana vulnerable to future shocks, such as changes in global interest rates or fluctuations in commodity prices.
Moreover, Ghana’s debt profile is increasingly dominated by foreign currency-denominated debt, which exposes the country to exchange rate risk. This means that any depreciation in the value of the Ghanaian cedi could lead to a sharp increase in the cost of servicing the country’s external debt, further exacerbating its debt burden.
In light of these challenges, it is clear that Ghana needs to take bold steps to address its debt crisis and put its finances on a more sustainable footing. This will require not just short-term measures such as the debt exchange programme, but also long-term reforms to improve revenue mobilisation, reduce wasteful spending, and promote economic growth.
One potential avenue for Ghana to address its debt crisis is to seek a bailout from the IMF. However, as Terkper noted, this will require significant work on the country’s part to demonstrate that it is taking concrete steps to address its debt and fiscal challenges. This could include measures such as implementing a credible medium-term fiscal consolidation plan, reforming state-owned enterprises to improve efficiency and reduce losses, and improving transparency and accountability in public financial management.
While Ghana’s successful execution of the domestic debt exchange programme is a positive development, it is not enough to solve the country’s deep-seated debt and fiscal challenges. It is critical that the government takes bold steps to address these issues in a sustainable and comprehensive manner, in order to put Ghana on a path towards long-term financial stability and economic growth.
