By Samuel Lartey(Prof)
Ghana’s public debt has seen a significant reduction, falling by GH¢46.8 billion to GH¢761.0 billion (74.6% of GDP) as of October 2024, according to the Bank of Ghana.
While this represents progress in stabilizing the economy, the ripple effects on businesses, livelihoods, and the country’s economic destiny remain profound. This article delves into the implications of Ghana’s debt dynamics on its people, industries, and future growth.
Understanding Ghana’s Debt Story
In dollar terms, Ghana’s public debt decreased by $4.2 billion to $27.9 billion. The external debt component, which represents 44.5% of GDP, fell by GH¢52.6 billion to GH¢453.7 billion, providing some breathing room for foreign exchange pressures. However, domestic debt rose to GH¢307.3 billion, making up 30.1% of GDP.
Despite these shifts, the reality on the ground is sobering: if Ghana’s debt were shared equally, each citizen would owe approximately GH¢23,630. Meanwhile, inflation remains at 40.1%, eroding purchasing power and raising the cost of living for millions.
Impact on Businesses
- Strained Credit Access:
High domestic borrowing has led to elevated interest rates exceeding 30%. For businesses, especially SMEs that form 70% of Ghana’s economy, accessing affordable credit has become increasingly difficult, stifling growth and innovation.
- Currency Stability:
With reduced external debt, pressure on the Ghanaian cedi has eased slightly. However, long-term stability will depend on consistent fiscal discipline and export growth to strengthen the currency.
- Investor Sentiment:
Ghana’s $13 billion debt restructuring has restored some investor confidence. This is crucial for sectors like technology, renewable energy, and manufacturing, which depend on foreign direct investments to expand.
Impact on Livelihoods
- Rising Living Costs:
Inflation remains a pressing issue. Food, transportation, and housing costs continue to soar, disproportionately affecting low-income households. While debt reduction offers hope for stability, the benefits have yet to trickle down to the average Ghanaian.
- Job Losses and Wage Stagnation:
Businesses grappling with high operational costs have cut jobs or frozen wages. Sectors such as hospitality and retail, already recovering from the COVID-19 pandemic, have been hit hardest.
- Social Infrastructure Under Strain:
With debt servicing consuming over 60% of government revenue, social services such as healthcare, education, and infrastructure development remain underfunded. This directly affects the quality of life and opportunities for millions of Ghanaians.
Economic Outlook and Opportunities
- SME Growth Potential:
Small and medium-sized enterprises, the backbone of Ghana’s economy, can drive recovery if they receive adequate support. Policies that reduce taxes and improve access to financing are critical to unlocking their potential.
- Harnessing Natural Resources:
Ghana’s agricultural sector, coupled with emerging industries like renewable energy, holds immense potential. With strategic investment and value addition, these sectors could reduce the country’s reliance on imports and bolster exports.
- Long-Term Debt Sustainability:
The IMF projects that Ghana’s debt-to-GDP ratio could decline to 69.7% by 2029, provided the country adopts prudent fiscal policies. Achieving this milestone will require a focus on economic diversification and cutting unnecessary expenditures.
Conclusion
Ghana’s debt reduction is a welcome development, but its impact on businesses, livelihoods, and the broader economy remains complex. While the government has taken steps to stabilize the fiscal environment, challenges such as inflation, high interest rates, and limited social spending persist.
For businesses, the debt story is a tale of opportunity and caution. For citizens, it is a reminder of the need for economic resilience and adaptability. As Ghana approaches its December 2024 elections, the decisions made by its leaders will shape the economic destinies of millions, offering either a path to recovery or deeper financial strain.
