Ghana's debt well scrutinised at World Bank Spring Meetings

The issue of Ghana's debt sustainability became a talking point at the World Bank/IMF Spring Meetings which just ended at Washington D.C. in the United States.

At two separate news conferences held by the International Monetary Fund (IMF), the issue came up. 

Of concern to many was whether the debt levels of about 70 per cent would reduce especially in an election year.

There have been concerns that government, in an attempt to please and woo the electorate, might direct funds into non-productive areas which might have dire consequences.

Early indications suggest that the government's capacity to resist politically motivated spending may have been overstated by the programme. 

For instance, unbudgeted subsidies have already been incurred after the government gave in to workers' demands for a cushion against sharp utility tariff increases. 

Containing government borrowing within the set limit would be difficult in these circumstances. 

This makes the forecast reduction in the debt-to-GDP ratio somewhat optimistic. 

In actual fact, how to readjust the 2016 budget to manage these problems will exercise the minds of the IMF staff team and the government during their next round of meetings which will begin this week.

Some critics are of the view that the programme requires an explicit debt target, rather than mere projections, to give better assurance about its debt sustainability objective.

Fiscal consolidation

But the Director of Africa Department of the IMF, Ms Antoinette Sayeh, told a news conference in Washington DC last Friday that the fiscal consolidation efforts were encouraging.

"We have been satisfied with the progress in Ghana. We will be there next week to review the progress made by the country."

The high yields on the 2015 Eurobond and other medium-term domestic bond issues by the government are examples of persistently high financing costs, which make debt management more difficult.

Even though she commended government's efforts to reduce debt levels, she said the timing for the issuance of the last Eurobond loan was wrong looking at the interest expense.

"The bond expense was high and one can, therefore, conclude that the timing was wrong. But the government was faced with limited financing options because they couldn't go to the domestic market and the only alternative was the international market."

The debt issue was brought to the fore at the launch of the Fiscal Monitor last Tuesday.

The Deputy Director of the Fiscal Affairs Department, Mr Abdelhak Senhadji, said the debt level in Ghana was quite high. 

“Indeed, in 2015, the debt level was around 75 per cent. Now, having said that, the authorities have made significant progress in bringing debt or at least the deficit down. The deficit in 2014 was at 12 something per cent and it was brought down to five per cent in 2015, which is a significant effort. Fiscal consolidation has begun and it was front-loaded.”

He said; “In terms of the path for debt, indeed debt remains very high, but we project it to go down gradually if the authorities continue with the fiscal effort that they have already started.”

“In terms of what it implies for growth, of course, fiscal consolidation had a small drag on growth in the short term. Growth declined from around five per cent to four per cent, and 3.5 per cent in 2015. As fiscal accounts strengthen and fiscal stabilisation is successful, it is projected actually to resume going up over the medium term. That is at least the projection we have,” he said.