Ghana’s public debt stock increased to 351.8 billion in December 2021, up from 344.5 billion in November 2021, representing approximately 80.1 percent of GDP, according to the Bank of Ghana’s (BoG) March 2022 Summary of Economic and Financial Data.
This confirmed Economists, Analysts, and Market Watchers’ concerns that the country’s debt had gotten out of hand, and was estimated to be around 80% of GDP in 2021.
According to Central Bank figures, approximately 730 million new loans were added to the total public debt stock in December 2021. The increase could be attributed in part to the cedi’s depreciation in the final two months of 2021, which increased the external debt component.
The government may have kept its word that it will borrow only a billion cedis in the fourth quarter of 2021, primarily from the domestic market.
According to the data, the domestic debt increased to 181.8 billion in December 2021, up from 179.4 billion in November 2021. This equates to 41.4 percent of GDP.
Though borrowing from the domestic market is the government’s preferred option for the time being due to the high interest costs associated with external commercial debt, the government’s continuous borrowing is crowding out the private sector’s access to funds and, as a result, keeping lending rates relatively high.
In addition, the external component of the total public debt increased to $28.3 billion (170.0 billion) in December, up from $27.9 billion in November.
The external debt’s debt-to-GDP ratio, on the other hand, is equivalent to 38.7 percent of GDP.
The cedi component increased by 6.3 billion, owing primarily to the decline in the cedi’s value relative to the dollar during the period.
The financial sector resolution bond, on the other hand, remained unchanged at 14.9 billion in December 2021, equivalent to 3.4 percent of GDP.
Ghana’s return to the IMF is critical to restoring its B credit rating, according to Fitch.
At the beginning of March 2022, ratings agency stated that Ghana’s return to the International Monetary Fund was critical to the restoration of the country’s B credit rating and stable economic outlook.
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This, it believes, will reassure investors, particularly foreigners.
In a podcast about the country’s economic outlook, it stated that reducing domestic debt is a key factor in maintaining a favorable rating in the future.
Jermaine Leonard, Director at Fitch Sovereign and Lead Analyst for Ghana and Zambia, believes that strengthening the fiscal economy through fiscal consolidation should be a priority for the Ghanaian government in the future.
“On the positive side, what things will lead to rating stabilisation; resumption of access to international capital markets will be a big one, and that will come from an IMF program or a change in investor sentiments,” he said.
“We will be paying attention to the international reserves position and whether Ghana can see a rise in non-debt creating inflows like FDIs [Foreign Direct Investments] in the medium term,” he added. We will also be watching to see if the government can carry out its fiscal consolidation plan and reduce public sector debt.”
