Emmanuel Amoah-Darkwah’s thoughts … The ballooning public debt in the midst of COVID-19 pandemic: impact on macroeconomic stability


Budget deficit and its accompanying debt are key indicators in accessing the health of any economy. At the end of March 2020, Ghana’s public debt reached GHȼ 236.1 billion according to the Bank of Ghana. Of the total debt, US$ 22.9 billion is external representing 31.4% while GHȼ 113 billion was secured locally representing 28%.

Per the above report, public debt to GDP ratio is 59.3%. At the regional level, 29 Sub-Saharan African Countries benefited from HIPC and MDRI debt relief programs beginning from the late 1990s according to Brookings Institution report titled Is sub-Saharan Africa Facing Another Systemic Sovereign Debt Crisis? This resulted in public debt falling from 110% in 2001 to 35% in 2012 but this trend has been reversed since 2013 increasing from 31% in 2012 to 53% in 2017. Ghana’s story is not different the above description. In 2010, Ghana rebased its economy and attained a lower-middle income status which meant access to grants and concessional financing will be limited. In 2017, the country again rebased its economy.

The widening budget deficit coupled with need for infrastructure development have been some of the underlying reasons for borrowing. In 2007, Ghana floated its first Eurobond and this has been a regular feature in public finances. The table below chronicles the number of Eurobonds the country has floated.


2007 $750 million 8.50 10
2012 $1 billion 7.875 12
2014 $1 billion 8.125 12
2015 $1 billion 10.75 15
2016 $750 million 9.75 5
2018 $ 1 billion

$ 1 billion





2019 $750 million

$1.25 billion

$1 billion







2020 $1.25 billion

$1 billion

$750 million







How Sustainable is Ghana’s Debt?

The rising debt stock therefore needs prudent public debt management strategy to avert macroeconomic instability. Public debt management is the process of establishing and executing a strategy for managing a governments’ debt in order to raise the required amount of funding, achieve its risk and cost objectives and to meet any other debt management goals whiles debt service involves the repayment of interest on the debt and the amortisation of the principal.

According to the 2019 IMF and World Bank public debt sustainability analysis, the number of countries in Africa that are either in or at high risk of debt distress rose from 6 in 2013 to 15. In the 7th and 8th Seventh and Eighth Reviews under the IMF Extended Credit Facility (ECF) arrangement which ended in 2019, Ghana was considered as high risk of distress as indicated in the table below which is similar to the country’s 2015 DSA position.

IMF& World bank Sustainability Analysis 2019

Risk of external distress High
Overall risk of debt distress High
Granularity in the risk rating Sustainable
Application of judgement No

Ghana’s public debt has been exacerbated by the twin –financial and energy sector debt. This debt position is likely to deteriorate with the impact of Covid-19 and the 2020 elections. A World Bank econometric analysis run over the period of 1991-2010 suggests that over the period of the Fourth Republic, on average, the fiscal deficit (on cash basis) has been about 1.5 percentage points of GDP higher than in the preceding year and that the three years following the elections have been used to bring back the deficit to its initial level. This election year will not be an exception largely fueled by the impact of Covid-19 pandemic on revenue and expenditure targets.

The share of external debt as percentage of total debt can be a trigger of macroeconomic instability. According to the Third Quarter 2019 Public Debt Statistical Bulletin, public debt stood at GH¢208.6 billion (US$38.74 billion) at end-September 2019, which is 60.55% of rebased GDP. External debt accounted for GH¢107.04 billion (US$20.1 billion); 31.11% of GDP, whereas domestic debt accounted for GH¢101.3 billion (US$19.06 billion); 29.44% of GDP.

In that report, external debt stock composition by creditor category was as follows; commercial 48.56%, multilateral creditors 31.9%, other concessional 8.2%, official bilateral loans 6.0% and export credits 5.4%. The dominance of the commercial debt in external debt portfolio is mainly attributable to the stock of Eurobonds. Ghana in February 2020 issued a US$ 3 billion Eurobond. The economic impact of Covid-19 pandemic has contributed to non-resident investors selling off their bonds whiles the depreciation of the Cedi lingers.

Domestically, government is set to issue cedi-denominated domestic debt securities to the tune of GH¢ 17,837.87 billion from the domestic market from June to August, 2020 in line with the public debt issuance calendar. Of the GH¢ 17,837.87 billion, domestic portfolio investors will be able to invest up to GH¢ 12,550 billion in short term government debt securities which are not open to foreign investors whiles the remaining GH¢ 5,287.87 billion would also be made available to non-resident investors. It might be difficult for government to realize the aforementioned amount partly because of the economic downturn caused by the coronavirus pandemic.

To reduce the debt burden on countries that are experiencing financing challenges as a result of Covid-19, the World Bank Group and International Monetary Fund on 25th March, 2020 issued a joint statement calling on all official bilateral creditors to suspend debt payments from IDA countries that request forbearance. The World Bank Group has since granted Ghana a freeze on a US$500-million debt and interest repayment for the rest of 2020. This is a step in the right direction but the composition of Ghana’s public debt (dominated by commercial loans) makes it difficult to enjoy much relief.

In a statement to assess the impact of the Covid-19 pandemic on the economy of Ghana presented by the finance minister to parliament in March, 2020, overall fiscal deficit will increase from the programmed GHȼ18.9 billion (4.7% of GDP) to GHȼ30.2 billion (7.8% of revised GDP).

More so, the primary balance will correspondingly worsen from a surplus of GHȼ2,811 billion (0.7% of GDP) to a deficit of GHȼ5.6 billion (1.4% of GDP). The higher than projected fiscal deficit of 7.8% as compared to the 5% and the negative primary balance are in breach of the Fiscal Responsibility Act (Act 982).

At present, government is within the 65% of debt to GDP ratio in line with the objectives of the fiscal responsibility law but reversal of this upward trend is likely not to be achieved in the short to medium term. The finance minister in July 2020 will present a mid-year budget which will give government the opportunity to review its macroeconomic targets as a result of the economic challenges caused by the Covid-19 pandemic.

Ghana’s 2020-2023 Medium-Term Debt Management Strategy which is underpinned by the following macroeconomic targets (average overall GDP growth of 5.7%, primary balance to be positive, fiscal deficit not more than of 5% annually etc) will be thrown out of gear. Policy makers should review the public debt management strategy to reflect the financing gaps caused by the Covid-19 pandemic. Indeed, we are not in normal times, government should rationalize expenditure to safeguard the medium to long-term economic prospects of Ghana.

>>>The writer is an Economic Analyst


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