Banking Consultant and Financial Analyst, Dr. Richmond Atuahene has observed that Ghana is still at risk of defaulting on its loan obligations which might necessitate another debt restructuring and its accompanied hardships, although the country has successfully rescheduled part of its debt.
He maintains that Ghana, after the debt rescheduling has not implemented any major revenue measures to stimulate the country’s finances for the impending repayment beginning in 2026.
This was contained in a research paper by the Financial Analyst copied to The High Street Journal. Dr. Atuahene is calling for drastic and immediate measures, or else the country is heading towards danger in the coming years.
It would be recalled that the government sought the International Monetary Fund – IMF’s intervention in 2022 as the country faced a severe economic and financial crisis. This was coupled with unsustainable levels of public debt stock.
Analysts described the economy as heading towards collapse if drastic interventions had not been sought. The situation, the IMF attributed to a combination of pre-existing vulnerabilities and external shocks of the COVID-19 pandemic and the Russia-Ukraine Crisis.
The country’s economy then faced very acute financial pressure, soaring inflation which was pushing many into extreme poverty, slowing economic activity leading to rising unemployment among other pressures that brought distress to the government, businesses and individuals.
The government, despite the calls to seek external assistance, remained resolute in using what they described as “homegrown policies” to resolve the challenges. But after it was overwhelmed by the enormity of the challenge, it turned to the IMF in July 2022.
The government, in consultation with the IMF, designed a reform programme aimed to “restore macroeconomic stability, debt sustainability and lay foundations for stronger and more inclusive growth. The IMF Executive Board on May 17, 2023, approved the programme which became known as the $3 billion Three Year Extended Credit Facility (ECF) to support the country’s post-COVID-19 economic recovery.
With Ghana’s debt level hitting an unsustainable level, the government needed to undertake a debt restructuring exercise as part of the IMF programme. This became necessary as Ghana’s Debt to GDP as of 2021 stood at 80.1%. This figure was projected to hit 90.7% by the end of 2022 which will be 40.7 percentage points above the IMF recommended threshold for developing countries of 50%.
The Ministry of Finance admitted that with this ballooning debt stock, debt servicing alone was taking 70% of total tax revenues in 2022 as the total public debt stock if that of the State-Owned Enterprises is included exceeds 100% of GDP.
This debt crisis led to the country defaulting to the tune of about US$30 billion on its external debt obligations as of December 2022 after the government suspended payments due to the inability to pay. This began the effort of the government to restructure its unsustainable debt.
Ghana has made significant progress in restructuring its debts as part of efforts to stabilize its economy. Domestically, the government has successfully restructured GHS 203 billion in local bonds under its Domestic Debt Exchange Program (DDEP).
On the external front, bilateral debt worth US$5.4 billion has been restructured with creditors such as China and the Paris Club, while commercial loans – eurobond debts, valued at US$13.1 billion have also been restructured.
However, multilateral debts amounting to US$9.2 billion remain non-restructured as per the agreements with the IMF and the World Bank. In addition, the government has contracted new loans for the country’s digitization, energy recovery, GARID project, etc, which are also further deepening the country’s debt burden.
The World Bank’s report on Ghana has revealed that the poverty levels have surged to 30.8% of the population. This means about 10 million Ghanaians are living below the poverty line of US$2.15 per day. In addition, there is rising unemployment which the Ghana Statistical Service estimates to be around 14%. This is also coupled with deteriorating living standards mainly caused by rising inflation.
The Debt Restructuring has further deepened the situation deteriorating the plight of social groups like pensioners who were mostly affected by the haircut. For the first time in many years, pensioners embarked on a series of demonstrations to cry out about the impact of the debt restructuring on their lives.
The impact on financial institutions that also took a hit is very profound as non-performing loans surged deteriorating their capital and eroding the gains of shareholders.
The restructuring has brought some respite to the current government, but it appears there is a looming danger ahead when the suspended debts begin to mature. Some debts have been suspended, but the government continues to pile up more debt with many loans while the energy sector’s legacy debt still remains outstanding.
An analysis conducted by Dr. Richmond Atuahene revealed that despite the suspended debt which will be maturing in a few years, the government has not engaged in any major revenue mobilization effort to meet the upcoming debt obligations.
Also, Ghana’s debt servicing requirements far exceed its projected revenues from exports and other revenue sources. In simple terms, Ghana country’s revenues are not enough to even service the debt when they mature as revenues from cocoa, gold, and others are not sufficient to meet debt obligations from 2026 onwards.
In addition to the export revenue, tax revenues are nothing to write home about. Ghana’s tax-to-GDP ratio is one of the lowest in Africa which is less than 15% far below countries like Kenya, Rwanda, South Africa, etc.
“If you look at the inflows that come in, Ghana may not be able to meet the debt as we have planned it now. Because we haven’t increased, what we haven’t done is that the resources that are supposed to meet the payment are not very good,” he noted.
The financial analyst believes Ghana is treading the path of defaulting on debt again. To put it simply, with the current situation if it persists, Ghana cannot pay its debt obligations when they mature.
Dr Atuahene said Ghana is on a trajectory that is comparable to Argentina and Jamaica’s prolonged debt crisis. Argentina after restructuring its debt, like Ghana’s current situation, failed to implement revenue measures to meet the maturing debts, and hence was defaulted which plunged the country into a repeated rescheduling and restructuring.
Ghana is still going to face another unsustainability debt level despite the debt restructuring which will again put the country in liquidity stress and long-term fiscal instability. This also means the socio-economic difficulties the ordinary Ghanaian faced as a result of the debt restructuring are going to repeat in severe heights.
“So Ghana is in a very, very, very dangerous trajectory. The trajectory is that we will not be able to bring our debt trajectories to a sustainable level because of the figures. Because we have to pay for the domestic, we have to pay for the bilateral, all this, the release that the minister was talking about.
“If you do your mathematics, let me call it mathematics, what you generate will not be enough to pay for the rescheduling of the various debts that we have on our neck,” he told The High Street Journal.
To avert the possible debt default which might necessitate another debt restructuring, the financial analyst made the following recommendations.
He said Ghana must enhance export revenues through value addition (e.g., processing cocoa and gold domestically); diversify revenue streams, including improving tax collection and expanding the tax base and implement strategic reforms in public sector spending to ensure resources are directed towards debt servicing and economic recovery.
He also called for the engagement of stakeholders, including international financial institutions, for innovative solutions to ease the burden of energy sector debts.
Additionally, he advocated leadership that will not embrace mediocrity but a visionary, transformational leader who can transform the country’s bankruptcy into a prosperous and stable economy.
