By Nana Sifa Twum (PhD)
Ghana’s debt situation requires urgent and strategic action. By combining strong diplomacy, economic reforms, and international engagement, Ghana can successfully negotiate debt relief and create a path toward long-term economic stability.
The country’s huge external debt remains a significant challenge, affecting economic growth, currency stability, and social development. To address this issue, the country can consider a combination of short-term relief measures and long-term structural reforms.
Over the next four years, Ghana is expected to pay about GH¢150.3 billion, representing 11.6% of GDP in domestic debt service obligation alone, of which 73.3% is due in 2027 (GH¢57.6 billion) and 2028 (GH¢52.5 billion). The country’s debt service obligations for 2027 and 2028 appear as major humps. These humps are cancerous and pose a significant risk to the economy.
“Our debt service obligation for this financial year is equally burdensome with significant humps in February (GH¢9.9 billion), July (GH¢6.2 billion) and August (GH¢10.1 billion), the fiscal challenges are further compounded by the significant short-term treasury bill maturities that we have inherited.”
According to the Minister for Finance, these obligations, totalling about GH¢111.1 billion, require rollover on a weekly basis, placing additional pressure on cash flow and liquidity requirements, but beyond domestic maturities, Ghana faces significant external debt service obligations over the next four years totalling US$8.7 billion, representing 10.9% of GDP., with a heavy concentration in 2027 and 2028.
Again, 55% of the total external debt service of US$8.7 billion is due to be serviced in 2027 (US$2.5 billion) and 2028 (US$2.4 billion). It seems the debt restructuring undertaken by the previous administration was designed to be 2027/2028-heavy.
Despite all these upcoming domestic and external debt service obligations, no buffers were built to cushion these unprecedented debt service burdens. The huge debt burden emanates from high borrowing. Ghana has borrowed over and above its capacity to repay.
Can more pragmatic measures and deeper engagement for relief with international lenders such as the International Monetary Fund (IMF), World Bank, China, and other private bondholders restructure the debt, extend repayment periods, or negotiate lower interest rates? For how long can we continue to have these frightening debt figures in our book?
Amidst our high debt burden, Is there a possibility to go the “Kufour way” to seek partial debt forgiveness? Lobby for debt relief through international initiatives like the G20’s Common Framework for Debt Treatment has been the norm for heavily indebted countries such as ours.
Ghana benefited from the HIPC Initiative, which led to the cancellation of $4 billion in debt between 2001 and 2006. The debt relief allowed Ghana to invest in education, health, and infrastructure.
Over the years, several countries have successfully lobbied for debt forgiveness or restructuring, often through international initiatives, bilateral negotiations, or economic reforms.
In just recent times, in 2023, Zambia secured $6.3 billion in debt relief from its creditors under the G20 Common Framework for Debt Treatment. It restructured its debt with China and private bondholders, allowing for a more manageable repayment plan.
In 2020, Argentina successfully negotiated the restructuring of $65 billion in sovereign debt, delaying payments and reducing interest rates. It had, earlier in 2005, restructured $81 billion of its defaulted debt, convincing creditors to accept a 60% haircut (debt reduction).
Almighty Nigeria, in 2005, negotiated an $18 billion debt cancellation with the Paris Club of creditors. The deal required Nigeria to pay $12 billion upfront, but it eliminated a huge portion of the country’s external debt.
Between 2009 and 2010, Haiti received $1.2 billion in debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative led by the IMF and World Bank, and after the 2010 earthquake, major creditors (including the IMF) forgave Haiti’s remaining external debts. Iraq, Mozambique among others, have treaded on the same trajectory with success.
Ghana can learn from these countries by leveraging international support – Engaging with the IMF, World Bank, and G20 to negotiate debt restructuring. Amisdts the sanctions and conditions, a pragmatic approach could again win the sympathy and support of the IMF and World Bank support to leverage on IMF’s Extended Credit Facility (ECF) or other concessional loans to stabilise the economy while implementing reforms.
Our revenue source is abysmal, to say the least. Drastic measures must be put in place to increase revenue mobilisation. The nation’s revenue has been parochially centred on tax
Improving the tax administration by widening the tax net, reducing exemptions, and leveraging digital tax collection systems must be the priority. All successive governments have not succeeded in this. The resetting agenda must target this area.
The tax net only captures the formal sector “victims” leaving over 10 million informal sector workers who share and enjoy the nation’s wealth with the few taxpayers. Formalising the informal sector, therefore with the introduction of tax incentives and easier registration processes to bring more businesses into the formal economy will be a game changer.
We must make judicious use of the gains from our natural resources. There must be a deliberate effort to improve revenue from natural resources such as gold, oil, and cocoa through better contracts, transparency, and local value addition. The Ghana COCOBOD and the yet-to-be-established GOLDBOARD must be held accountable for this to help boost Non-Tax Revenue:
From afar and near, one can only see so much waste in the system. Unnecessary travels and engagements. Meetings that could be conveniently held in Accra are held outside Acrra for obvious reasons. All institutions, including parliament, are guilty of this.
The Public Procurement system has rather become a channel of waste than its intended purpose. Improve Debt Management and Transparency. The a need for enforcing fiscal discipline by strengthening laws to prevent excessive borrowing and ensure parliamentary scrutiny of loan agreements.
The cutting of wasteful spending thus reducing non-essential government expenses, including excessive allowances, vehicle purchases, and foreign trips mst be seen as key in a economic recovery efforts.
The government, today has no other obtion than to prioritise development spending in invest in high-return projects like infrastructure, education, and health while cutting politically motivated projects to make resetting more meaningful.
The promotion of economic growth and export diversification must no longer continue to be political and rhetoric. We need to enhance Industrialisation and invest in manufacturing, agribusiness, and local value addition to reduce import dependence and boost exports.
Tourism Expand Tourism and Services: Leverage Ghana’s rich culture, history, and hospitality industry to increase foreign exchange earnings. Ghana’s tourism sector has experienced significant fluctuations over the past decade, influenced by global events and targeted initiatives. Overall, Ghana’s tourism sector has shown resilience and growth, particularly through strategic initiatives like the “Year of Return.” Continued efforts in promoting cultural heritage and improving infrastructure are expected to sustain this upward trajectory
Ghana earned approximately $2.19 billion from tourism, with around 1.1 million international arrivals. While specific figures for 2023 are pending official release, the Ghana Tourism Authority’s “2023 Tourism Report” indicates a strong recovery post-pandemic, with international arrivals and revenues rebounding towards pre-2019 levels.
Let us negotiate better trade agreements and leverage the African Continental Free Trade Area (AfCFTA) to expand exports. Strengthen Trade Policies:
Ghana must adopt a multi-faceted approach to negotiating debt relief, increasing revenue, cutting wasteful spending, and diversifying the economy to manage and reduce external debt. Strong leadership, accountability, and policy consistency will be key to achieving sustainable debt levels.
