As the government grapples with weak revenues and tight financing, the Institute for Fiscal Studies (IFS) has cautioned strongly against a hasty return to the international bond market.
The hasty return, the IFS warns, would worsen Ghana’s already precarious debt situation.
The Temptation of the Bond Market
In its latest analysis of the country’s fiscal position, the IFS identified that the government is faced with shrinking fiscal space and missed borrowing targets.
This situation, the institute fears, could lure the government into believing that a return to the international bond market is the best option. After all, a successful Eurobond issuance could plug immediate financing gaps.
But IFS argues this is the same path that led Ghana to its current debt distress. It says resuming such borrowing will cause the already high debt level to worsen sharply, causing debt service costs to increase rapidly.
In other words, the quick fix could prove more damaging than the problem itself, piling fresh interest obligations on a country already weighed down by servicing old loans.
A Risky Road Back to Debt Crisis
Ghana has only just begun navigating its way through a painful debt restructuring process, which saw investors, banks, and pension funds take heavy hits.
IFS fears that rushing back to the bond market risks undoing those hard-won gains and dragging the country into yet another debt crisis. This will risk the country returning to another debt crisis soon.
For ordinary Ghanaians, that would mean more austerity measures, higher taxes, and fewer resources for critical development projects as debt service swallows up revenues.
“Do not rush to return to the international bond market in response to the difficult fiscal conditions: A return to the international bond market is not a sustainable solution to the revenue and financing challenges the government is facing,” the IFS warned.
It continued, “Resuming such borrowing will cause the already high debt level to sharply worsen, causing debt service costs to increase rapidly, as happened in the past. This will risk the country returning to another debt crisis soon.”
Revenue, Not Borrowing, Is the Answer
Instead of falling back on foreign borrowing, IFS says the smarter, more sustainable option lies in fixing revenue mobilization.
The institute points to Ghana’s extractive sector, particularly gold, oil, and gas, as areas where the government can raise more revenue with better monitoring, taxation, and transparency.
By plugging leakages and ensuring fair returns from natural resources, Ghana could secure the funds it needs without returning to the borrowing spree that has repeatedly undermined its fiscal stability.
“The government should instead prioritize improving revenue mobilization, focusing on the extractive sector as explained above,” the institute recommended.
For the policy think tank, Ghana cannot borrow its way out of a debt crisis. With this, the government is faced with the choice between short-term relief and long-term sustainability. IFS insists that the government choose the latter.
