IMF exposed to risk of escalation in Ghana’s debt – Terkper
Former Minister for Finance, Seth Terkper, has said IMF is exposed to risks from escalation in Ghana’s public debt.
Ghana’s debt to GDP ratio according to the IMF is projected to hit over 90% by the end of the year from the present figure of 68% of GDP.
For credit rating agency Moody’s, the country’s debt to GDP is expected to hit 104% by the end of 2022.
The projected increase in the country’s public debt stock to over 90% making the nation’s debt stock unsustainable.
According to Mr Terkper, the IMF has been urged by monetary economists to be cautious in lending to countries that may lead it or other countries to default.
Ghana is one of such countries as its inability to service its debt and a possibel default led to the country being kicked out of the international debt market.
Already, Ghana has hasn’t paid in full the $1bn Covid loan it took from the IMF as well as the $960m loan it took from the IMF in 2016 when it went to the Fund for the Extended Credit Facility (ECF) programme.
“Managers of the economy are worried about the country’s debt situation and so why shouldn’t the Fund itself be worried, and you’ve also heard monetary economists caution the IMF to be cautious in lending to countries that may lead it and others to default
“We are going to borrow from the Fund and that will be added to our debt stock, and I don’t even think we have finished paying the Covid loan given to us as well as the loan given to us for the ECF in 2016,” Mr Terkper stated.
Debt-to-GDP to hit 104% at end 2022
Credit rating agency, Moody’s, has forecasted Ghana’s debt to increase by some 2,600 basis points (26%) by the end of 2022.
According to the rating agency, Ghana’s debt will rise to 104% of GDP by the end of this year.
Accounting for significant rise in the country’s debt, Moody’s asserts, will be the depreciation of the cedi which has so far declined in value by some 4,000 basis points (40%) to the dollar.
“The local currency, the cedi, has depreciated by around 40% against the US dollar since the start of the year, exacerbating the challenges from an already high debt burden. Because foreign currency-denominated debt accounted for 37% of GDP at end of 2021, Moody’s forecasts that the currency depreciation over 2022 will be the main contributor to the rise in the debt-to-GDP ratio this year to more than 100% of GDP (104%, 26 percentage points higher than in 2021),” Moody’s stated in its recent downgrade of the country’s credit rating from Caa1 to Caa2.
“Meanwhile, Ghana’s balance of payments position is deteriorating. Significant outflows in the first half of 2022 led to a fall in foreign exchange reserves to $5.9 billion as of the end of the second quarter of 2022 (covering 4.5 months of imports as of first quarter of 2022, which is the latest data available), down from $8.4 billion at the beginning of the year,” it added.
Touching on interest payments on loans, Moody’s averred Ghana has one of the highest interest spending globally, given that interest payments is expected to rise to 58% of government revenue by the end of this year.
“Global and domestic rate hikes result in higher interest rates for the government while the loss in purchasing power induced by high inflation is a drag on economic activity. Higher government borrowing costs have rapidly increased its interest spending, which consumed almost half of the government’s revenue in 2021, a proportion Moody’s forecasts to rise to 58% in 2022, one of the highest globally,” it said.
Ghana, is currently seeking a $3bn Balance of Payment support programme from the IMF due to the unsustainability of the country’s debt levels.
