World Bank cautions over issuing bonds

Albert Zeufack, World Bank Africa Region Chief Economist, and Punam Chuhan-Pole, World Bank Africa Region Lead Economist, and author of Africa’s Pulse during the 2018 WBG-IMF Spring Meetings. Photo: Dasan Bobo/World Bank

The 2018 African Pulse Report by the World Bank has cautioned African governments to reduce their high appetite for borrowing from the markets, especially internationally, as it argues this poses significant risk to economies on the continent.

“The composition of public debt has changed – away from traditional toward new sources of financing. The share of concessional and multilateral lending is on a clear downward trend, and by 2016 the bulk of bilateral lending was provided by non-Paris Club creditors.

“Market-based external debt has emerged as new source of financing for several lower-middle-income countries, but also low-income countries. Although international bond issuances allow countries to diversify their investor base and complement multilateral and bilateral financing, large bullet repayment from 2021 on constitute significant refinancing risk for the region,” the report states.

The report adds that as of march this year, 18 countries—including Ghana—were at high risk of debt distress, compared with eight countries in 2013.

“Public debt increased from an average 37 percent of GDP in 2013 to 56 percent in 2016, with more than two-thirds of the countries experiencing an increase of more than 20 percentage points. Debt sustainability risks in the region have increased significantly over the past few years, with 18 countries at high risk of debt distress as of march 2018,” the report states.

The African Pulse Report further noted that “worsening fiscal positions and exchange rate depreciation” were among the main reasons behind the recent increase in public debt.

Again, another reason the Bank cited for mounting public debts is the slowdown in economic growth experienced by many countries on the continent.

The Bank is therefore urging various governments to improve debt management frameworks and capacity in order to address this problem.

Putting it into local perspective, figures released by the Bank of Ghana in March showed Ghana’s debt stock has almost reached the dreaded threshold of 70 percent of GDP.

The country’s public debt stock has reached GH¢142.5billion as of December 2017, representing 69.8 percent of GDP.

Even though the figure is a reduction from the 73.3 percent of GDP recorded in the same period 2016, it is still at unsustainable levels.

The central bank’s data show that in September 2017 Ghana’s debt stood at GH¢138.9billion, representing 68.1 percent of GDP. The figure dropped to GH¢137.6billion in October, representing 67.4 percent; but it went up to GH¢139billion in November, representing 68.1 percent of GDP.

The domestic component of debt as at December 2017 stood at GH¢66.7billion, while the foreign debt stock was at GH¢75.8billion.

Several institutions have persistently urged government to devise means of shoring-up domestic revenue in order to cut borrowing.

The IMF, in February this year, urged government to legislate new measures that boost revenue by at least 0.5 percent of Gross Domestic Product (GDP), as low revenue mobilisation has been blamed for the fiscal imbalances experienced over the years.

To this effect, the Ghana Revenue Authority (GRA) has directed that all business owners in the country, beginning this month, must register a Tax Identification Number (TIN) before they are allowed to access certain essential services in the country.

This is to ensure that most businesses in the informal sector are roped into the tax net.

Leave a Reply