The public debt stock peaked in December last year after increased debt accumulation to plug revenue shortfalls and finance a larger fiscal deficit expanded the amount that the country owes to domestic and external creditors.

Bank of Ghana (BoG) data released on January 29 showed that the debt stock ended the year at GH¢286.9 billion, the highest since the bank started releasing data on how much the country owes.

The December 2020 stock was equivalent to 74.4 per cent of total economic output, measured by gross domestic product (GDP).

It is the first time in more than 15 years that the debt-to-GDP ratio has reached 74 per cent. The closest was in 2016 when it was reported at 72.5 per cent of GDP.

High debts crowd out the fiscal space by ensuring that more revenues are used to finance the interest and pay off the principals, a situation that limits spending in productive sectors and also creates a cycle of borrowing.

Clean up exercise

Of the debt stock, the data showed that GH¢15.4 billion, equivalent to four per cent of GDP, was expended on the financial sector clean up exercise.

The data on the economy was released ahead of the central bank’s Monetary Policy Committee (MPC) press conference on February 1 where a policy decision on BoG’s policy rate and the direction of monetary policy for the next three months would be announced.

The data further showed debts procured domestically had overtaken those procured from foreign sources, the first in years.

Tough times

The latest development preceded a warning from the Governor of BoG, Dr Ernest Addison, that the country required tough decisions to reorganise public finances after the COVID-19 pandemic impacted harshly on them.

While stating that the deficit target of 11.4 per cent of GDP was understandably high, the Governor, who also chairs the MPC, said in late December that the debt-to-GDP ratio of 71 per cent at the time was “fairly above the maximum early warning sustainability threshold of 70 per cent for the market access countries (MACs).”

“The country’s debt service indicators and gross financing needs have breached the sustainability thresholds. The non-resident holdings of the public debt, although declined, is still high at 59.9 per cent of GDP, above the threshold of 45 per cent for the MAC,” he said at a lecture that explored the status of the economy.

“Public gross financing needs are also above the 10 per cent MAC threshold on the back of increased fiscal obligations, suggesting constrained fiscal space for growth spending,” he said at last year’s University of Ghana, Legon Alumni Lecture.

Composition

The data showed that the debt stock was GH¢218.2 billion (62.4 per cent of GDP) in December 2019 but rose by 35.6 per cent to GH¢286.9 billion last December.

It indicated that about GH¢68.7 billion was added to the debt stock within the 12-month period.

The data further showed that the share of the debt into external and domestic were almost at par, although those procured locally were slightly above those owed to foreign creditors.

The foreign component was GH¢139.6 billion, representing 36.2 per cent of GDP while the domestic component was GH¢147.3 billion, equivalent to 38.2 per cent of GDP.

The country remains a high risk debt distress country under the International Monetary Fund (IMF) and the World Bank Group rankings after making it to the list in 2015.