Debt accumulation and sustainability relative to gross domestic product (GDP) in Ghana’s economy have been a major concern to a cross-section of citizens, economic, and financial analysts in recent years.
The debt-to-GDP ratios recorded by Ghana in recent years are as follows: 2012 = 35.58%; 2013 = 43.22%; 2014 = 51.16%; 2015 = 54.83%; 2016 = 57.12%; 2017 = 57.27%; 2018 = 59.29%; 2019 = 63.01%; and 2020 = 63.46%.
The latter reflects the debt to GDP ratio as at March 2020. However, as at June 2020, the ratio was pegged at 67% after additional debts had been incurred.
The actual debt and GDP figures revealed steady increase in debt-to-GDP ratios over the period. Nonetheless, the rate of increase varied from one financial year and political administrative period to the other.
For instance, the rate of increase varied from 2013 through 2016; and from 2017 through 2020 respectively.
Debt Accumulation in Recent Years
The quantum of national debt in nominal terms as at December 2012 was US$20.09 billion, equivalent to GH¢114.51 billion.
The total debt increased to US$31.42 billion in 2016, an equivalent of GH¢179.09 billion; and represented an increase of US$11.33 billion during the period.
The differential (US$11.33 billion) is approximately GH¢64.58 billion.
Ghana ended the 2017 financial year with total debt stock of US$33.79 billion, equivalent to GH¢192.60 billion, implying additional debt of US$2.37 billion (equivalent to GH¢13.51 billion) between 2016 and 2017.
The national debt as at December 2019 was estimated at US$39.57 billion, equivalent to GH¢225.55 billion, suggesting an increase of US$8.15 billion (an equivalent of GH¢46.46 billion) between 2016 and 2019.
The foregoing, to a very large extent, affirms the steadiness at which the nation’s total debt was accumulating prior to the outbreak of the COVID-19 pandemic.
As at March 2020, Ghana’s total debt stock had increased to US$41.42 billion, equivalent to GH¢236.1 billion.
However, recall, in mid-March this year, the nation was compelled to plan her preparedness and responsiveness to the ravages of COVID-19.
This unforeseen natural occurrence invariably redefined the nation’s debt components and total debt stock.
As at June 2020, Ghana’s total debt was estimated at GH¢258.373 billion, equivalent to US$45.33 billion.
Total debt accumulated between December 2016 and June 2020 was estimated at US$13.91 billion, equivalent to GH¢79.29 billion; and US$2.58 billion (about GH¢14.71 billion) more than total debt accumulated (US$11.33 billion = GH¢64.58 billion) between December 2012 and December 2016. Discussions on Ghana’s debt values in this section were based on a reference exchange rate of GH¢5.70 to US$1.00.
Development Projects and Debt Accumulation
Recent statistics released by Ghana’s Vice President, Alhaji Dr. Mahamudu Bawumia revealed the total number of social and infrastructural development projects embarked on by the President Nana Akufo-Addo’s administration across the country from 2017 till date is about seventeen thousand, and three hundred and thirty-four (17,334).
The data indicated 8,746 projects, representing about 50.5% of the total projects have been completed while the remaining 8,588 projects (equivalent to 49.5%) are ongoing, and at various stages of completion.
Perhaps, it may not be an exaggeration to state the plethora of projects (17,334) initiated by the current administration is the principal or underlying factor for the total debt (GH¢79.29 billion) accumulated between December 2016 and June 2020 albeit, significant costs have been incurred in the fight against COVID-19. As noted elsewhere, all the projects cited by Alhaji Dr. Bawumia have been outlined and accessible through the following portal: www.deliverytracker.gov.gh.
COVID-19 and National Spending
The initial effect of COVID-19 on the Ghanaian economy was a dramatic review of planned fiscal deficit for 2020 from GH¢18.9 billion (4.7 % of projected GDP) to GH¢30.2 billion, representing 7.8% of targeted GDP; and implying an estimated budget financing gap of GH¢11.3 billion (GH¢30.2 billion – GH¢18.9 billion = GH¢11.3 billion) during the period.
As of May 2020, the budget financing gap had surged to GH¢21.42 billion. This comprised GH¢15.85 billion in revenue shortfalls and GH¢5.57 billion in COVID-related expenditure to be incurred.
Some financing measures identified and implemented included access to the International Monetary Fund’s (IMF’s) Rapid Credit Facility (US$1 million), World Bank’s Development Policy Operations (DPO) Fund (US$350 million), and Stabilisation Fund (US$219 million), among other significant financing sources.
These funds reduced the residual financing gap to GH¢17.9 billion; and this amount was expected to be sourced from both external and domestic financial markets.
Recall, Ghana’s growth target for 2020 has been reviewed severally (from 6.3% to 2.5%, 1.5%, and now 0.9%) to reflect the socio-economic dynamics and realities in the wake of the menacing COVID-19 pandemic whose sporadic and predatory presence has been felt in all the six major Regions across the globe – Africa, Asia, Europe, North America, South America, and Oceania.
However, some advanced economies including the People’s Republic of China have relaxed growth targets for the current financial year.
As of May, China had decided not to set any growth target for 2020.
Rather, she had resolved to channel her resources into real sectors to stimulate private sector investment, consumption, and export.
The country is counting on these key variables to drive growth in the economy during the period. At the end of the second quarter of 2020, the United Kingdom’s economy suffered a contraction of 22%.
This was more than twice the contraction rate in the United States, and the highest among the G7 member countries during the period.
Some analysts described the current crisis as UK’s first economic recession in eleven (11) years.
Internal Comparative Ratios
Available data from 2012 through 2020 indicated the respective highest percentage points increase in Ghana’s debt-to-GDP ratios were recorded in 2014 (7.94%) and 2013 (7.64%).
The average percentage points increase in Ghana’s total debt accumulation from January 2017 through March 2020 was 1.59% ((0.15% + 2.02% + 3.72% + 0.45%) ÷ 4 = 6.34% ÷ 4 = 1.585 = 1.59%).
This was about 3.39 times (5.39% ÷ 1.59% = 3.38994 = 3.39 times) lower than the average accumulation rate (5.39%) from 2013 through 2016; and reflected fairly the “true state” of the Ghanaian economy prior to the advent of COVID-19. As at June 2020, the average percentage points had increased to 2.47% ((0.15% + 2.02% + 3.72% + 3.99%) ÷ 4 = 9.88% ÷ 4 = 2.47%), reflecting increased national expenditures relative to revenue mobilisation during the period.
However, this was significantly lower than the average rate of debt accumulation (5.39%) recorded from 2013 through 2016.
The average rate of debt accumulation from January 2017 through June 2020 was about 2.2 times (5.39% ÷ 2.47% = 2.18219 = 2.2 times) lower than the average accumulation rate from 2013 through 2016.
Although total national expenditure for the current financial year is expected to increase to commensurate with increasing cost of fighting the COVID-19 pandemic, the economy is projected to record one of the lowest percentage point increase in accumulated debt relative to GDP since 2013.
This affirms effective management of the Ghanaian economy in the last four years; and the institution of prudent and pragmatic measures to mitigate foreseen and unforeseen external and internal economic shocks during the period.
Debt Management Strategy
The relatively low percentage points increase in accumulated national debt from 2017 through 2020 could be attributed largely to the debt re-profiling strategy adapted and implemented by current managers of the Ghanaian economy.
For instance, in early June 2020, the Finance Minister, Hon. Ken Ofori-Atta, announced Ghana’s preparedness to access a loan facility to the tune of GH¢17.8 billion between 20th June and 20th August, 2020. About 88.76% (GH¢18.8 billion) was expected to be applied to roll-over maturing loans, indicating only 11.24% (GH¢2 billion) would be fresh issuances and additions to the debt stock.
To illustrate, suppose Ghana’s total debt stock during the period was GH¢236.1 billion.
The loan facility of GH¢17.8 billion would increase the total debt stock to GH¢238.1 billion (GH¢236.1 billion + GH¢2 billion = GH¢238.1 billion), and not GH¢253.9 billion (GH¢236.1 billion + GH¢17.8 billion = GH¢238.1 billion) because GH¢15.8 billion would be used to offset or write-off parts of the total debt of GH¢236.1 billion which are due for payment.
Thus, the only new debt to be added to the original debt of GH¢236.1 billion would be GH¢2 billion, resulting in new total debt stock of GH¢238.1 billion.
Debt re-profiling has resulted in extended payment periods, reduction in interest rates and interest charges; and overall decrease in total national debt.
External Comparative Ratios
Ghana’s accumulated debt-to-GDP ratio for 2019 was estimated at 63.01%. The ratio was computed based on available data on respective total debt (GH¢218 billion) and total GDP (GH¢346 billion) for 2019. Consequently, some economic pundits consider this ratio to be very high.
This notwithstanding, it compares favourably with debt-to-GDP ratios recorded by the following advanced, emerging, and developing economies during the period: Japan 238%; Greece 177%; Lebanon 151%; Italy 135%; Singapore 126%; Cape Verde 124%; Portugal 118%; Angola 111%; Mozambique 109%; United States 107%; Djibouti 104%; France 98.1%; Cyprus and Spain 95.5%; Egypt 90.0%; Canada 89.7%; Gambia 81.8%; United Kingdom 80.7%; Mauritania 79%; Brazil 75.79 %; Sao Tome and Principe 73.1%; India 69.62%; and Tunisia 71.4%.
All else held constant, the debt-to-GDP ratios for most of the foregoing economies, including Ghana are likely to increase while growth may blip at the end of the current financial year.
For instance, total debts of the United Kingdom in 2020 are projected to surge while economic growth during the period is expected to slump by about 10%. Comparatively, the initial growth target of 6.5% for the Ghanaian economy has been reviewed downward to 0.9% while the Chinese economy is projected to contract by 42%.
Full Impact of COVID-19
To reiterate, the full effects of COVIOD-19 on the Ghanaian economy are yet to be felt, although job losses in the hospitality, leisure and tourism industry were initially estimated at 800,000.
This notwithstanding, there is no gain saying the salient and carefully-thought-through measures and policies put in place by the current managers of the Ghanaian economy are yielding positive dividends; these measures and policies are strong contributing factors to Ghana’s “controlled” expenditure in the midst of the deadly COVID-19 pandemic.
But for stringent measures, Ghana’s total spending in the wake of COVID-19 would have spiraled to uncontrollable limits. In turbulent times such as this, strong economic fundamentals enable the country to absorb unexpected internal and external economic shocks better.
In spite of its attendant preponderant challenges, it is worth-emphasising that COVID-19 has boosted domestic production and consumption of food commodities such as rice, maize, cassava, yam, and chicken, among others, in the Ghanaian economy. Challenges emanating from the COVID-19 pandemic have churned out innovation and ingenuity in some individuals, private organisations, and the nation as a whole.
Indeed, “necessity,” they say, “is the mother of inventions.” The impact of COVID-19 on global economies including Ghana in the current financial year is portentous. As a result, the nation’s economic trajectory cannot be focused essentially on lower fiscal deficit and lower debt financing as growing expenditures in the wake of COVID-19 are met with dwindling revenues.
Advanced, emerging, and developing economies such as the United States, China, United Kingdom, Brazil, Kenya, and Tunisia, among others, have been compelled by the pandemic to engage in deficit financing.
In Ghana, the packages intended for stimulation of the economy are estimated at over GH¢115 billion comprising over GH¢15 billion expenditure (equivalent to 4.3% of projected GDP for 2020) in the immediate-term; and GH¢100 billion planned to be expended through the Ghana COVID-19 Alleviation and Revitalisation of Enterprises Support (CARES) programme in the medium-term.
As at July 2020, total economic stimulus packages announced by the UK government, including the estimated costs of the “Plan for Jobs” initiative amounted to £190 billion, equivalent to 9% of GDP.
The total stimulus package includes massive spending on infrastructure, ensuring job retention and re-employment of laid-off workers, and stimulating demand in sectors of the economy strongly affected by social distancing rules.
Further, future years’ budgets on infrastructure spending totaling £5.6 billion have been brought forward to enhance immediate economic stimulation in post-COVID-19 period.
The respective stimulus packages announced by China, New Zealand, and Japan as at May 2020 were £410 billion (4% of GDP), £26 billion (17% of 2019 GDP), and £870 billion (20% of GDP).
The value (£870 billion, representing 20% of GDP) of the total stimulus packages announced by Japan, the world’s third largest economy, was more than double the value (£410 billion, equivalent to 4% of GDP) stated by China. The latter is the world’s second largest economy after the United States.
In June this year, the Coalition Government of Germany, the world’s fourth largest economy, announced an economic stimulus package of €130 billion, equivalent to 4% of 2019 GDP.
However, the adaption and implementation of individual stimulus measures are pronounced in countries such as Canada, France and Australia.
The iterative measures adapted by these three economies align with evolution of the COVID-19 pandemic (Institute for Government, 2020).
A significant lesson we could glean from the foregoing is, in perilous socio-economic times such as the one handed by COVID-19, it is incumbent on national leaders to implement measures that would assure and sustain lives and livelihoods of their respective citizens and other inhabitants therein; the emphasis in the immediate-term cannot be placed on lower deficits and debts.
To wit, lower budget or fiscal deficits and debts cannot be the “rod” to measure general economic performance in periods characterised by global liquidity trap, occasioned by strong external and internal shock, owing to the portentous COVID-19 pandemic.
By Ebenezer ASHLEY (Dr)
The writer is a Chartered Economist/Business Consultant.