Former President John Mahama, has said Ghana is likely to end up like Sri Lanka and default on its interest rate payments if government does not undertake a comprehensive restructuring of the country’s public debt.
Making the assertion at the inaugural launch of economic policy think tank, Think Progress Ghana, the former President noted fiscal consolidation measures are not enough to help address the country’s debt challenges.
“Creditors continue to shy away from Ghana and other countries that are likely to end up like Sri Lanka and default on their debt repayments.
“It is evident, therefore, that the solution to our debt problem, lies with taking bold steps to restructure debts to get some relief from pumping far too much revenue into debt servicing on an annual basis and channelling the savings into priority areas to benefit our people directly.
“So the Akufo-Addo government must understand that fiscal consolidation alone will not do the trick, as we require a comprehensive debt restructure to obtain the sort of fiscal space or relief that will ease our plight,” he remarked.
Sri Lanka has defaulted on its debt for the first time in its history as the country struggles with its worst financial crisis in more than 70 years.
A 30-day grace period to come up with $78m (£63m) of unpaid debt interest payments expired on Wednesday.
The governor of the South Asian nation’s central bank said the country was now in a “pre-emptive default”.
Later on Thursday, two of the world’s biggest credit rating agencies also said Sri Lanka had defaulted.
Defaults happen when governments are unable to meet some or all of their debt payments to creditors.
It can damage a country’s reputation with investors, making it harder for it to borrow the money it needs on international markets, which can further harm confidence in its currency and economy.
Ghana’s debt as a percentage of GDP per official data from the Bank of Ghana, currently stands at 78% which is well above the maximum 70% debt to GDP threshold for middle income countries.
Given the country’s current debt-to-GDP, Ghana has been classified as a country at risk of high-debt distress.
With tax revenue-to-GDP ratio hovering around 13%, the country is unable to raise the needed revenue to finance its expenditure resulting in huge fiscal deficits.
Most of the country’s tax revenues goes into interest payments, compensation and amortisation.
Total interest payments for the first quarter of 2022 for instance, amounted to GHS 10.6bn, constituting 63.8% of domestic revenue.
Available data from the first quarter economic outcome published by government, shows that the fiscal deficit target for the first quarter of 2022 has been missed with a deficit of 2.6% recorded instead of the programmed 2.2%.
Total revenue and grants for the first quarter of 2022 amounted to GHS 16.7bn (3.3% of GDP), lower than the target of GHS 19.3bn (3.9% of GDP).
Taking a swipe at the government, Mr Mahama noted the Akufo-Addo led government has mismanaged the economy with almost all the major macroeconomic indices like inflation, debt levels, debt to GDP ratio, exchange rate, fiscal deficits, primary balance, gross financing needs, gross and net international reserves performing poorly.