A corporate governance and banking consultant, Dr. Richmond Akwasi Atuahene, is cautioning that the nation’s outstanding debt obligations – over US$42billion at current rates over the next decade – could result in further debt exchanges if substantial reforms are not adopted.
In a paper titled ‘Ghana’s Public Debt Crisis and Debt Overhang: No Easy Way Out’, the analyst warned that without comprehensive reforms the country could face another round of debt exchanges.
He observes that interest and principal payments from the first debt restructuring still impose a high burden on the country – hence Ghana may require a second debt exchange in 2027 or 2028.
It will be recalled that last month the finance ministry announced that it had achieved a significant milestone in its debt restructuring efforts, completing a Eurobond exchange programme.
This Eurobond debt exchange programme was built on the Domestic Debt Exchange Programme (DDEP) completed in 2023, which involved restructuring GH¢203billion of domestic debt. Government also reached an agreement with the Official Creditors Committee (OCC) on restructuring US$5.1billion in bilateral official debt.
The DDEP, completed in two phases by September 2023, reduced interest rates and extended maturities. However, these measures have not entirely alleviated the prevailing fiscal pressures.
It is in view of this Dr. Atuahene cautions that without robust fiscal reforms and strict control over government expenditure, the debt restructuring may simply postpone debt obligations rather than achieve its long-term debt sustainability goal.
The country must fully capitalise on diversifying its tax revenue streams through introducing environmental levies, property taxes and taxes on digital services, he notes, as comparisons with peers like Rwanda and Kenya highlight the lag in leveraging these revenue streams.
Additionally, flagship government programmes which many deemed populist have contributed to the fiscal strain. Dr. Atuahene observed that programmes like Free Senior High School, Agenda 111 and One District, One Factory enjoyed budgetary allocations worth GH¢33billion over three years, adding to the country’s domestic debt crisis.
Poor targetting and lack of proper budgetary planning have compounded fiscal challenges. Also, the debt overhang has had far-reaching consequences for the financial sector and private investment. Banks, heavily exposed to government bonds, experienced significant losses due to the domestic debt exchange programme; creating liquidity constraints, tightened credit conditions and discouraging private-sector investment.
