Former Finance Minister under the erstwhile NDC administration, Seth Terkper has given a glimpse into the next administration’s possible debt management strategy to deal with the huge debt overhang.
Seth Terkper, who is perhaps the leading candidate for the Finance Minister role in the next administration, believes Ghana’s economy must undergo resetting. He contends that the resetting agenda must first prioritize the management of the country’s current high debt overhang.
Following the suspension of debt service repayment after the default and the debt restructuring programme, the current debt overhang has been a major concern for some economists and financial analysts.
For instance, financial analyst, Dr. Richmond Atuahene has consistently bemoaned the high debt overhang and the failure of the government to make provisions to service the suspended debts which will mature in the future. Dr. Atuahene has served notice that Ghana could likely be plunged into another debt default which could necessitate another round of debt restructuring given the failure of the current administration to build reserves for repaying the debt.
But it appears there is hope on the horizon Terkper says that the NDC’s resetting agenda will be hinged on establishing a robust debt repayment mechanism through sufficient reserves in amortization or sinking funds.
These funds, he suggests, would act as a buffer, ensuring that Ghana can consistently meet its annual loan repayment obligations. Mr. Terkper says the building of reserves will ensure consistent repayment of the debts and hence reduce the country’s overall debt stock and pave the way for fiscal stability.
“The first ‘step’ in a ‘reset’ is to have sufficient reserves in your ‘debt repayment’ [i.e., amortisation or sinking fund] to cover the annual budget’s repayment of past loans. If this amount is higher, your debt stock will fall [and it will rise when the repayment amount is lower],” the economist noted in a post on X cited by The High Street Journal.
Although this strategy may be technically sound, it might face implementation hurdles, particularly at a time when the economy is grappling with rising inflation, a depreciating currency, and a very limited fiscal space.
It, however, is unclear how the next government will navigate through these numerous challenges to build the needed reserves to service the country’s maturing debts to avert another default or possible restructuring of debts.
