Seth Terkper, Ghana’s former Finance Minister, has urged the government to adopt prudent borrowing practices and re-establish a Sinking Fund to manage future debt obligations, as the country resumes servicing its Eurobond debt.
His call comes amid ongoing concerns over the domestic impact of Ghana’s recent debt restructuring program, which has placed significant pressure on both foreign and local investors.
At a media dialogue on Tuesday about the prospects for the economy following agreements with international lenders and the third IMF review, Terkper emphasized the strain caused by two rounds of debt haircuts during the restructuring process.
He warned that while debt restructuring was necessary to alleviate short-term fiscal stress, the long-term effects—such as reduced investor confidence, increased borrowing costs, and a weakened local financial sector—could hinder economic stability and private sector growth.
Ghana recently resumed Eurobond payments after suspending coupon payments in 2022. The government paid $520 million in 2023, including $120 million in consent fees to bondholders. Terkper stressed that the resumption of these payments, while crucial for maintaining creditworthiness, puts significant pressure on the country’s fiscal space, especially following the restructuring of $13 billion in domestic and external debts.
Terkper urged the government to exercise fiscal discipline and limit borrowing to productive investments that can generate returns to service debt, cautioning against borrowing for recurrent expenditures. He warned that irresponsible borrowing could trap Ghana in another debt crisis, undermining efforts toward sustainable growth.
To address future debt obligations, Terkper proposed reintroducing the Sinking Fund he established during his tenure. This financial mechanism, which helped Ghana successfully repay Eurobonds in 2017 and 2020, involves setting aside regular contributions to pay down debt, reducing the government’s burden when large debts mature.
Terkper also highlighted the need for stronger domestic revenue mobilization, suggesting improvements in tax collection and a broader tax base to reduce reliance on external debt.
Rebuilding confidence in Ghana’s economy is essential for attracting foreign investment and ensuring that Ghana can maintain access to international credit markets at favorable terms. While the resumption of debt servicing is necessary for maintaining international creditworthiness, Terkper warns that without strong fiscal discipline, Ghana risks falling back into a debt crisis. His proposal for a Sinking Fund offers a strategic solution to ensure debt sustainability, reduce financial risk, and provide long-term stability for the country’s economy.
