Adu Koranteng writes on why Ghana Needs Debt Service Suspension

The debt to Gross Domestic Product (DBT/GDP) is currently around 76 percent according to figures released by the government of Ghana, though this is being contested by some stakeholders who claim it is around 80.1 percent.

The situation is worrying based on the fact that 76 percent or 80.1 percent of the revenue generated by government is used to service the country’s debts, leaving government with a small chunk of the revenue to invest in developmental projects and other recurrent expenditures. Since government is unable to rely on this meagre amount, it  has  no option than to continue borrowing to survive.

Ghana’s debt stock  hit GHS291.6 billion as of December 2020according to the Minister for Parliamentary Affairs and caretaker Minister for Finance, Osei Kyei-Mensah-Bonsu in his delivery of the Budget in Parliament on March 12

He said “The total public debt has increased from GHS122 billion, which is 69% of GDP to GHS291.6 billion, which is 76.1% of GDP, as of the end of December 2020,” he said when he presented the 2021 budget statement in Parliament.

He blamed the ballooning debt stock on some non-recurrent burdens. The Caretaker Finance Minister indicated that if these expenditures were to be excluded, the debt stock would have been GHS239.9 billion, which would have been 58.7% of GDP.

“Included in the debt stock and the debt to GDP ratio are the following non-recurrent burdens that we had to deal with as a matter of urgency; the fiscal impact of COVID-19, which is GHS19.7 billion, the cost of the financial sector clean-up, which is GHS21 billion, and the cost of excess capacity charges paid to IPPs, which is also GHS12 billion.”

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“If these expenditures are excluded and the drop in GDP growth in 2020, primarily attributable to COVID-19, is taken into account, the total stock of debt for 2020 would have been approximately GHS239.9 billion, implying a dent to GDP ratio of 58.7%.”

With the increasing rate of public debt in the midst of the COVID 19 pandemic, it will be appropriate for development partners including the World Bank, IMF and even the government of China to consider suspending most of the country’s debt to put it on a clean financial record to face the emerging future.

Last year Ghana refused to be part of the World Bank IMF Debt service suspension initiative.  Ghana with other countries with greater market access, like Nigeria, Kenya, Ghana and Rwanda, chosen not to participate apparently because they feared doing so would damage their creditworthiness.  Another condition of participation was that countries might not take on further non-concessional loans for the duration of the DSSI.

Ghana is in a debt crisis. Despite having had significant amounts of debt cancelled between 2001 and 2004, the country is losing around 76 percent of government revenue in external debt payments each year.

Such huge payments are only possible because Ghana has been able to take on more loans from institutions such as the International Monetary Fund (IMF), the Chinese government and Eurobonds which are used to pay the interest on debts to previous lenders, whilst the overall size of the debt increases.

Ghana’s crisis is the result of a gradual increase in lending and borrowing off the back of the discovery of oil and high commodity prices. More money was then

borrowed following the fall in the price of oil and other commodities since

2013, to try to deal with the impact of the commodity price crash, whilst the relative size of the debt also grew because of the fall in the value of the

Ghanaian currency, the Cedi (GH¢), against the dollar ($). The emergence of COVID 19 also cringed the economy into recession. The underlying causes of the return to a debt crisis are therefore the continued dependence on commodity exports, as well as borrowing and lending not being responsible enough, meaning that new debts do not generate sufficient revenue to enable them to be repaid.

At the moment, all the costs of the crisis are being born by the people of Ghana, and none by the lenders. This is unfair. Lenders should carry their share of the cost of any irresponsible lending, and of the change in circumstance caused by the fall in commodity prices.

Additional action is also needed in order to prevent a repeat of Ghana’s crisis, including changes on the part of the government and lenders to ensure that loans are well used, and that more of the revenue generated by the economy is turned into government revenue by taxation

WORLD BANK IMF COVID-19 DEBT SERVICE SUSPENSION INITIATIVE

According to the World Bank COVID-19 has dealt a major blow to world’s poorest countries, causing a recession that could push more than 100 million people into extreme poverty.

Based on this the World Bank and the International Monetary Fund (IMF) has urged G20 countries to establish the Debt Service Suspension Initiative. The DSSI  will help  countries concentrate their resources on fighting the pandemic and safeguarding the lives and livelihoods of millions of the most vulnerable people. Since it took effect on May 1, 2020, the initiative has delivered about $5 billion in relief to more than 40 eligible countries.

In all, 73 countries are eligible for a temporary suspension of debt-service payments owed to their official bilateral creditors. The G20 has also called on private creditors to participate in the initiative on comparable terms. The suspension period, originally set to end on December 31, 2020, has been extended through June 2021.

The World Bank and the IMF are supporting implementation of the DSSI—by monitoring spending, enhancing public debt transparency, and ensuring prudent borrowing. DSSI borrowers commit to use freed-up resources to increase social, health, or economic spending in response to the crisis. They commit to disclose all public sector financial commitments (involving debt and debt-like instruments). They also commit to limit their non-concessional borrowing to levels agreed under IMF programs and the World Bank’s non-concessional borrowing policies.

By Kwabena Adu Koranteng

The writer is a Financial and Economic Journalist working with the New Crusading Guide newspaper