In addressing the country’s current debt, which is at an unsustainable level, Finance Minister Ken Ofori-Atta has announced that government will implement a debt exchange programme to address challenges identified in the debt portfolio.
Provisional debt data as at end-September 2022 show a significant increase in the country’s public debt, largely due to exogenous factors. The end-September 2022 provisional figures indicate that total gross public debt stood at GH¢467.37billion (US$48.87billion), representing approximately 75.9 percent of GDP.
Presenting the 2023 budget on the floor of parliament, the finance minister mentioned that sustainability of the country’s debt has been continuously affected by the negative impact of exchange rate depreciation, particularly on external debt, as well as the crystallisation of significant contingent liabilities in recent years.
“The current debt sustainability analysis conducted reveals that Ghana is now considered to be in high risk of debt distress,” he said.
Despite the heightened debt levels, Mr. Ofori-Atta affirmed government’s commitment to ensuring the country’s debt is brought to sustainable levels over the medium- to long-term.
“We will implement a debt exchange programme to address challenges identified in the portfolio – in collaboration with all relevant stakeholders including the Ghanaian public, investor community and development partners,” he stated.
The minister highlighted the impact of credit depreciation on the public debt, stating that: “The cedi-depreciation seriously affects our ability to effectively manage our debt. Indeed, our stock of debt has increased by GH¢93.86billion this year alone, due to depreciation of the cedi since the beginning of 2022”.
In the immediate term, government intends working toward securing an agreement with the International Monetary Fund; executing the debt exchange programme; improving the management of foreign exchange; and supporting our local productive capacity for food security.
Composition of public debt
Of total public debt, the domestic debt component is GH¢195.66billion, which is 31.79 percent of GDP; while external debt is GH¢271.71billion, representing 44.15 percent of GDP.
The minster noted that the increase in domestic debt is largely on account of rising interest costs.
Domestic debt as a share of total public debt reduced from 51.6 percent in 2021 to 41.9 percent as at end September 2022, due depreciation of the cedi.
The external debt as a percentage of total debt stock was 58.1 percent as at end-September 2022. The sharp growth in external debt stock is largely driven by depreciation of the local currency, as it added GH¢93.86billion to the external debt stock.
Overall, debt accumulation increased from 20.7 percent in 2021 to 32.7 percent as at end-September 2022, reflecting the impact of Ghana cedi depreciation on the external debt side.
Dealing with debt
The minister noted that government will continue to strengthen its oversight of all SoEs, particularly in the financial and energy sectors.
“The reforms and discipline at SoEs will reduce potential fiscal risks from incidences of contingent liabilities.”
Also, in line with government’s objective to restore debt sustainability, Mr. Ofori-Atta said concessional loans will continue to be the preferred financing option for projects.
“We however recognise that there may be cases when non-concessional borrowing may be required to finance critical transformative projects. Such financing will be determined within limits that are consistent with our debt sustainability programme,” he said.