Ghana’s rising debt levels alarming – AMR report.

A new report by the Standard Bank, parent company of Stanbic Bank Ghana, has cautioned the government on its rising debt levels.

In its March 2021 Flash Note of the African Markets Revealed (AMR) report, it noted that the pace of growth of external commercial debt over the past few years had been alarming, hence the need for the government to do something about it if the country was to return to the fiscal consolidation path.

The report highlighted that although the country’s debt might seem sustainable, albeit with high risk of debt distress, the fast pace of growth of external commercial debt over the past few years called for caution.

Debt-to-GDP levels rose to 76 per cent in 2020 and could well hover around those levels in 2021 should GDP growth improve as expected.

“The split between domestic and external debt is almost even, at a 51:49 ratio. Moreover, commercial creditors, including Eurobond creditors, now account for nearly 50 per cent of the external debt composition, underscoring debt investors’ sustainability concerns,” the report indicated.

Fiscal consolidation may take four years

The report further indicated that the country might have to wait till 2024 to return to its deficit threshold of five per cent.

It, however, noted that that was not an isolated case as most African economies were expected to see fiscal consolidation between two and four years.

“The path to fiscal consolidation may take a further four years as the government does not expect to return to the Fiscal Responsibility Act threshold of five per cent of GDP until at least 2024.

The report highlighted that although the country’s debt might seem sustainable, albeit with high risk of debt distress, the fast pace of growth of external commercial debt over the past few years called for caution.

Debt-to-GDP levels rose to 76 per cent in 2020 and could well hover around those levels in 2021 should GDP growth improve as expected.

“The split between domestic and external debt is almost even, at a 51:49 ratio. Moreover, commercial creditors, including Eurobond creditors, now account for nearly 50 per cent of the external debt composition, underscoring debt investors’ sustainability concerns,” the report indicated.

Fiscal consolidation may take four years

The report further indicated that the country might have to wait till 2024 to return to its deficit threshold of five per cent.

It, however, noted that that was not an isolated case as most African economies were expected to see fiscal consolidation between two and four years.

“The path to fiscal consolidation may take a further four years as the government does not expect to return to the Fiscal Responsibility Act threshold of five per cent of GDP until at least 2024.

“In fact, most African economies foresee some two to four years to fiscal consolidation given the disruption to economic activity and consequent impact on government revenues amid rising social costs. However, fiscal consolidation faster than that will be desirable given high interest payments and debt service costs,” the report indicated.

Projected deficit

That, according to the report, came on the back of a projected fiscal deficit of 9.5 per cent in 2021.

The report further noted that improvement in Ghana’s fiscal consolidation would depend largely on how the country recovered from the shocks of COVID-19.

“The Ghanaian government projects a 9.5 per cent fiscal deficit-to-GDP ratio for 2021 amid rising social expenditure and interest payments, from 11.7 per cent recorded in 2020. Including financial sector costs, fiscal deficit-to-GDP was 13.7 per cent in 2020. Much of the progress on fiscal consolidation will depend of how quickly the economy can recover after the pandemic.

“The government forecasts growth of five per cent year-on-year for 2021, roughly matching our base case of 4.8 per cent year-on-year where we expect external demand to rebound more meaningfully in H2:21 due to vaccinations across the globe,” it stated.

About AMR

The African Markets Revealed Report is a monthly report issued by the Standard Bank Group and focuses on the economic and financial outlook of African countries.

The report also reviews current economic situations and makes short-to-medium-term predictions about the economies of African countries.