$8.5bn Required To Service Debt

Ghana’s public debt to Gross Domestic Product (GDP) ratio has reached a level considered to be above the sustainability threshold.

It is for this reason that the Institute of Fiscal Studies (IFS) has stated that $8.5 billion would be required to service the country’s external and domestic public debt this year assuming no roll-overs and refinancing of debt existed.

Prof Newman Kusi, Executive Director of IFS, who was delivering a paper on the country’s total debt situation recently in Accra, said between 2016 and 2020, a total of $12.7 billion would be required to service the country’s debt while another $7.7 billion would be required between 2021 and 2025 to service debt.

“Together, it is projected that Ghana will need $28.8 billion to service its debt between this year and 2025. Interest payments alone will amount to $2.4 billion in 2015, $4.4 billion in 2016-2020 and $2.6 billion in 2021-2025, bringing to a total of $9.4 billion in 2015-2025.

“As a percentage of domestic revenue, debt service increased from 20.1 percent in 2009 to 78.8 percent in 2014. In relation to exports, however, debt service increased from 73.5 percent in 2009 to 78.7 percent in 2014.”

External debt

Prof Kusi said all of Ghana’s external public debt were long-term in nature and owed mainly to official (multilateral and bilateral) creditors.

Official creditors accounted for an average over 81 percent of the total external debt in 2007-2012.

Private creditors’ share in the total external debt averaged 18.8 percent in 2007-2012.

Between 2013 and June 2015 however, the share of official creditors in total external debt dropped to 67 percent, while the share of private creditors increased to 33 percent.

The increase in the share of private creditors in the country’s external debt reflects mainly the country’s second and third Eurobonds issued in 2013 and 2014 respectively, as well as various loans obtained from the China and the USA EXIM banks.

Domestic debt

The IFS boss said the sharp rise in the domestic debt stock in 2012 reflected increases mainly in the medium-term instruments, which were driven by changes in the 3-year and 5-year Government of Ghana bonds, adding that the structure of the debt also changed significantly with a shift from short-term instruments towards medium-and long-term instruments in 2012.

“The increases in the domestic debt continued after 2012 reaching GH¢34.6 billion (30.2 percent of GDP) in 2014, GH¢35.9 billion at end-June 2015 and GH¢37.7 billion in September 2015 due to increases in both short-term and medium-term securities.

Over the period, the stock of long-term securities also increased but less rapidly compared to the short- and medium-term securities due mainly to the securitization of the 2013 overdrawn government position with Bank of Ghana (BoG) amounting to GH¢2.6 billion.

He said the banking sector remains the major holder of the domestic debt although the sector’s share in the total domestic debt stock dropped from 67.2 percent in 2009 to 49.9 percent in June 2015.

This notwithstanding, the share of the Bank of Ghana in the total domestic debt increased steadily from 17.2 percent in 2010 to 24.5 percent in June 2015.