The Institute of Economic Affairs (IEA) has raised concerns regarding the Ghanaian government’s increasing reliance on domestic borrowing due to its limited access to the international bond market.
In its July-August 2024 Economic Outlook report, the IEA acknowledged that the government’s inability to secure external financing has led to a significant surge in domestic debt, particularly at the short end of the market, where investor demand remains robust.
According to the report, Ghana’s domestic debt escalated by GH¢32.7 billion, or 12.7%, between January and June 2024, rising from GH¢257.3 billion to GH¢290.0 billion. In contrast, external debt saw only a marginal increase of US$0.9 billion, or 0.3%, from US$30.1 billion to US$31.0 billion. This disparity reflects the government’s constrained borrowing options on the international market.
The IEA acknowledged that while domestic borrowing may be necessary in the current economic climate, the government must closely monitor and control its borrowing levels to prevent exacerbating the country’s debt burden. As of June 2024, Ghana’s total public debt stood at GH¢742.0 billion, marking a year-to-date increase of GH¢133.6 billion, or 22%.
In dollar terms, the total public debt amounted to approximately US$50.9 billion, a decline from US$52.2 billion in December 2023, primarily due to the sharp depreciation of the cedi. Although Ghana’s debt-to-GDP ratio slightly decreased from 72.3% at the end of 2023 to 70.6% in June 2024, projections indicate that this ratio could rise to 82.5% by the end of the year under the International Monetary Fund’s (IMF) Economic Credit Facility program.
The IEA expressed surprise at the high projected debt-to-GDP figure, particularly given the government’s debt restructuring and fiscal consolidation efforts under the IMF programme, which were expected to alleviate the debt burden. The institute further questioned whether the target of reducing the debt-to-GDP ratio to a sustainable 56% by 2028 remains achievable.
IEA advised the government to exercise caution in its borrowing practices and prioritize fiscal consolidation to prevent the country from descending into a deeper debt crisis.
Source:thehighstreetjournal.com