Fiscal Scorecard: public debt reverses course (Part 1)

Seth E. Terkper

These series are designed to discuss the key aspects of Ghana’s recent fiscal performance, comprising revenue mobilization; expenditure allocation or appropriation; arrears accumulation and clearance (including exceptional expenditures—notably, treatment of banking sector bail-out costs); borrowing to finance the budget deficit or fiscal balance; and public debt management.

The articles cover various periods from 2010 to date, an era characterized by (a) the end of fiscal space provided by HIPC (heavily indebted poor country) and MDRI (Multilateral Debt Relief Initiative) programs; (b) two rebasing of the Gross Domestic Product (GDP); and (c) crude oil and gas production and exports. Part 1 discusses debt management and also shows that the series do conform to the logical order of the fiscal framework in the preceding paragraph.

Nominal Public Debt

Ghana borrows from domestic and external sources to finance the budget deficit or overall balance that includes change in arrears or unpaid bills. The deficit is the difference between our revenue (tax and non-tax) generation effort and expenditures (i.e., capital and recurrent). The main elements of the domestic and external debt are as follows:

  • Domestic debt: the main sources of domestic borrowing are (a) 91-day treasury bills and 1 and 2-year short-term bank notes; (b) medium term bonds which, until the issuance of 7-to-15-year bond securities from 2015, were mainly 3 and 5 year bonds.
  • External debt: these fall into categories that include (a) mostly concessional loans from bilateral and multilaterals sources, mainly the World Bank, African Development Bank (AfDB), and donors; (b) commercial loans from banking and other financial institutions; and (c) national or sovereign bonds issued on global capital markets.
  • Exchange rate: most external debt flows are in foreign currency and that makes the exchange rate critical in calculating the cedi value of the external cedi.

The use of end-March 2017 (instead of end-December 2016) exchange rate to calculate the 2016 debt stock results in the value being increased from Ghc120 billion to Ghc122 billion. Secondly, the bullet-paragraphs suggest that the Public Debt can be classified by its short-term and longer-term nature as well of source (by institution). Finally, though classified as domestic debt, Ghana allows foreign or non-resident individuals and financial institutions to patronize its domestic medium-term loans.

Issuance, purchase and sale of bills, notes, and bond

These Government certificates are evidence or security for the money borrowed. As financial instruments, these government securities change in value and can “traded” (i.e., sold or bought) by individuals and institutions. Since 2015, the Ministry of Finance (MOF) has used the “book-building” method (i.e., special bidding process) and the Government Fixed Income Market (GFIM) platform to issue and trade the medium-to-long term bonds on the primary and secondary (i.e., Stock Exchange) markets among intermediary banks and financial institutions.

Prior to 2015, however, all short-term and longer-term domestic loans were issued though auctions on the Bank of Ghana (BOG) Open Market Operations (OMO) and special auctions. Primarily, BOG uses the OMO platform to manage liquidity in the economy, mainly through primary and secondary dealers that major commercial banks and financial institutions.

National or Public Debt

The public debt may be in nominal or original cedi value, thus not taking account of the erosion of the cedi with inflation or its strength in relation to other major currencies. Table 1 shows the total nominal value of the stock of debt at the end of each fiscal year.

Table 1: Total Public Debt (Ghc million)

Source: Budgets and Public Debt Reports

Figure 1 depicts these nominal values (total or annual change) in graphical terms for easier appreciation.

Figure 1: Nominal Debt: total and change 

Source: Budgets and Public Debt Reports

Hence, most analyses of the Public Debt are based on the proportion of end-year debt stock to the national output or Gross Domestic Product (GDP). Table 2 shows the debt-GDP ratios for the domestic, external and total debt from 2012 to Sept 2019.

Table 2: Public Debt (Debt-to-GDP ratio)

Source: Budgets and Public Debt Reports

The same Table is shown in graphical form in Figure 1 for the domestic, external and total public debt.

Figure 1: Graph of Public Debt (Debt-to-GDP ratio)

Source: Budgets and Public Debt Reports

The outcomes and conclusions are the same for the nominal and debt-to-GDP ratio in the Tables and Figures.

  • Debt-to-GDP ratio: the issue by end-2016 transition, was whether Ghana’s rate of debt accumulation was excessive; the graph-tables show a clear reversal in trend between the ratios at end-2018 (i.e., 57.6 percent) and to end-Sept 2019 (i.e., 60.3 percent).
  • Rate of debt accumulation: the preceding point shows in the rate of accumulation of public debt; which shows a visible decline from end-2014 (and, indeed, since the HIPC era in mid-2000s) but increasing from end-2017 to date.

The rate of decline and reversal is due to stopping the New Debt Management Strategy (i.e., “smart-borrowing”) allocation of petroleum funds to the Sinking Fund set up in 2014 to liquidate maturing Bonds. The previous administration used over US$500 million of the Sinking Fund to redeem or buy-back most of the US$750 million (2007) Sovereign Bond. Indeed, it was the current administration that used the balance of US$200 million in the Fund to liquidate the Bond on October 4, 2017.

Financial Sector Bail-Out Cost

A major policy since 2018 is the closure of non-performing banks and other financial institutions at huge fiscal costs. As Table 1 shows, there has been a visible effort to exclude the bail-out costs from both the fiscal deficit and the public debt. Figure 3 show this position.

Figure 3: Impact of Bail out cost on Public Debt

The justification for this special treatment of exceptional expenditure is untenable, given the following observations from the nation’s fiscal historical fiscal rules—

  • Exceptional costs: Ghana has adopted a long-standing fiscal rule of adding ALL exceptional costs to expenditure, arrears, and public debt. Examples include
    • the residual cost of an 1980s financial sector bailout costs under NPART (non-performing asset recovery trust);
    • inclusion of divestiture receipts and payments due to the liquidation of state assets in the 1980s and early 1990s;
    • the reduction in the public debt from the waiver of debt-service obligations under the HIPC/MDRI initiative in the 2000s;
    • budget overruns due to the Single-Spine Pay Policy (SSPP) from 2009 to 2015 under the same IMF Program that seems to tolerate the separation; and
    • clearance of huge arrears of subsidies (petroleum and utilities) and road fund, including the cost of the power crisis from 2012-to-2015—which resulted in the Energy Sector Levies Act (ESLA) flow are added to receipts.
  • Convergence of bailout costs: The point seems mute now, compared to when it was made in FY2017, given the erosion of any political edge from the move—the public debt “without bail-out costs” at the end-September 2019 (57.2 percent) is also now higher than the end-2016 debt stock (56.8 percent) and will continue rise.


Ghana’s debt ratio is set to increase further before the end of FY2019 and extend beyond 2020. As the fiscal expansion continues, giving rise to more borrowing—despite fiscal consolidation—the shift to unorthodox methods of contracting debt are becoming clearer. These include the apparent quasi-fiscal borrowing through state agencies (e.g., COCOBOD and GNPC), defined and undefined statutory funds (e.g., GETFund and GAT), financial institutions, and off-budget sheet means of clearing expenditures and arrears.

The more explicit loans in the pipeline include the collaterization of commodities (e.g., SINO-Hydro Bauxite deal); mortgage of future revenues from minerals (e.g., royalties), and continued reliance on “tapping” to finance the deficit.

>>>the author is the former Finance Minister of Ghana

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