Minister for Finance, Ken Ofori-Atta has ‘admitted’ to Ghana being debt-distressed given the country’s current debt to GDP ratio of 70 percent.
According to the Minister, the surge in the country’s debt to GDP ratio from 52 percent in 2019 to 70 percent at end May 2021 has made the country’s debt situation unsustainable.
“Over the last year, Africa has come under extreme duress and continues to be, 113 million people losing their jobs, 30 million falling into extreme poverty and 30 million people also falling into poverty because of the Covid-19 pandemic.”
“And over the same period our debt to GDP ratio has gone from 52 percent to 70 percent which has made it debt-distressed and unsustainable,” stated the Minister.
Ghana, on the back of the fiscal impact of the Covid-19 pandemic ended 2020 with a fiscal deficit of 11.5 percent of GDP – excluding energy sector and financial sector bailout costs – from a previous fiscal deficit of 4.7 percent in 2019.
The witnessed surge in the fiscal deficit was on the back of declining revenues and an ever-increasing government expenditure occasioned by the pandemic resulting in the country’s debt to GDP reaching the current 70 percent level.
Must Read: Fitch revises Ghana’s outlook to negative; affirms country at ‘B’
Sentiments about Ghana’s economy being debt-distressed has been shared by many economic analysts notable among them being erstwhile Minister for Finance, Seth Terkper.
Mr Terkper has in numerous media interactions averred the economy is debt-distressed given the low levels of tax revenue to GDP, high debt service burden in which Ghana uses almost all of its tax revenues to finance both domestic and foreign debts coupled with the government’s insatiable appetite for borrowing.
According to Mr Terkper, should the current trend continue, Ghana is likely to hit a debt to GDP ratio of 80 percent or more by the end of this year.
A similar view which is shared by Fitch Ratings, as the international sovereign credit rating agency in its recent rating of the country projected Ghana’s debt to GDP ratio to reach 81 percent by the end of this year.
“The revision of the Outlook to Negative reflects the significant deterioration in public finances stemming from the Covid-19 pandemic and the delays to the government’s fiscal consolidation efforts, which reduce Ghana’s ability to absorb further shocks for an extended period.”
“The ‘B’ rating reflects the high public debt level and low revenue base, which mean that Ghana’s debt affordability metrics will remain markedly weaker than rating peers over the rating horizon.”
“We forecast general government (GG) debt to reach 81% of GDP in 2021, including 2.5% of GDP in bonds held through the Energy Sector Levy Act Plc., which is excluded by the government,” averred Fitch Ratings.
Presently, Ghana, per various communique by the World Bank and the IMF is classified as being at risk of high debt-distress.
The country’s debt-distress status will however be determined following the conclusion of the World Bank’s debt sustainability analysis of Ghana possibly by the end of June this year.
