To free up some funds and provide some ease in debt repayment plan in the short term, it will be prudent for government to take advantage of the G20’s Debt Service Suspension Initiative (DSSI), Deloitte Ghana has said in its post budget analysis.
This comes on the back of the 2021 budget revealing that the country’s debt stock has now risen to more than GH¢291 billion, representing more than 76 percent of GDP as of December 2021. Besides this, government intends to borrow about GH¢41.3 billion in 2021 to support the budget. Of this amount, GH¢25.4 billion, representing 62 percent, will be borrowed from the domestic economy.
This, Deloitte has said in its budget analysis report, that it will lead to crowding out of the private sector, as it could potentially increase the lending rate and reduce available credit funds for the private; and more so when the next available option, i.e., borrowing from the international capital markets, is relatively expensive and has led to increases in government’s expenditure on interest payment.
It is against this background that the auditing firm is advising government to take advantage of the G20 provision in order to provide some respite to the economy.
“Government should diversify sources of borrowing by seeking concessionary facilities from developing partners. In addition, government should take advantage of the recent Debt Service Suspension Initiative (DSSI) introduced by the G20 countries. The DSSI will help Government restructure existing debt and reduce the debt burden in the short to medium term,” the report said.
Commenting further on why it is necessary for government to consider the move even though it is of short term in nature, Financial Advisory Leader, Deloitte Ghana, Yaw Appiah Lartey, said it would free up some revenue for government to undertake important projects and provide avenue for macroeconomic strictures to be improved.
“If Ghana fails to take advantage of the DSSI, the country could lose the opportunity to get some liquidity in the short term to support social, health and economic spending required to support the proposed economic recovery. This could potentially lengthen the expected recovery period post-COVID-19.
In addition, government will also lose the opportunity to manage and improve the macroeconomic environment in the short term. Government indicated in the 2021 Budget Statement and Economic Policy that Ghana will be going to the international market to borrow using the Eurobond.
The cost of borrowing from the international market is relatively cheaper for countries with strong economic fundamentals. The DSSI is an opportunity for government to manage and improve the macroeconomic situation ahead proposed borrowing from the International Capital Market (ICM),” he said in an interview with the B&FT.
Data published by the World Bank shows that, even though Ghana is rated among countries having high risk of debt distress, it has not taken advantage of this initiative. Although there has not been any formal communication from government as to why it is not taking advantage of this opportunity, some countries have decided not to participate in the DSSI initiative partly due to the perception that it could affect their credit worthiness.
Even though there is no empirical evidence to support this assertion, Mr. Appiah said, it is feared that countries who opt for DSSI initiative may be downgraded by international credit rating agencies such as Moody’, Standard & Poor’s etc.
The Debt Suspension Initiative was established by G20 countries to help countries with limited resources concentrate their resources on fighting the pandemic and safeguarding the lives and livelihoods of millions of the most vulnerable people.
Since it took effect on May 1, 2020, the initiative has delivered about US$5 billion in relief to more than 40 eligible countries. The suspension period, originally set to end on December 31, 2020, has been extended through June 2021, according to information on the World Bank.
The World Bank and the IMF are supporting implementation of the DSSI by monitoring spending, enhancing public debt transparency, and ensuring prudent borrowing. DSSI borrowers commit to use freed-up resources to increase social, health, or economic spending in response to the crisis.
The countries further commit to disclose all public sector financial commitments (involving debt and debt-like instruments). They also commit to limit their non-concessional borrowing to levels agreed under IMF programs and the World Bank’s non-concessional borrowing policies.