Global public debt reached record levels last year, amounting to US$ 97 trillion, with developing economies accounting for a third of the debt, a 2024 report by the United Nations Conference of Trade and Development has revealed.

The report, dubbed “A world of debt-a growing burden to global prosperity,” reveals the staggering growth of public debt over the past decade from US$ 51 trillion in 2010 to US$97 trillion by the end of 2023.

Ghana, many other African and developing countries are currently going through debt restructuring programmes on account of the huge public debts that have made it impossible for such economies to repay their loans, especially to external creditors.

Ghana is currently negotiating with external creditors on how to restructure its external loans of over US$5 billion after a gruelling domestic debt exchange programme that nearly threw the economy off-balance.

The country had reached a peak of almost 90 per cent of debt to gross domestic product ratio by the end of 2022 (GDP) because of huge debts and interest payments that had gone through the roof.

The UNCTAD report, therefore, put into perspective the impact of the huge public debt crisis across the globe and how developing countries such as Ghana were at the short end of the global public debt.

For instance, the report revealed that even though public debt was growing in all regions of the world, it was only in Africa that it was growing faster than GDP.

Between 2010 and 2023, public debt as a percentage of GDP grew from 38 per cent to above 60 per cent, while that of Asia and Oceania regions' public debt grew from about 39% to 40% for the same period.

The report also showed that external debt service burdens relative to government revenues have increased from about 5% in 2010 to 8.8%. 

The same could be said of the external public service relative to exports, which also increased from 3.8% to 6.3% for the same period.

Again, the report noted that half of the developing economies allocated at least 6.3% of their export revenues to service external public debts.

Cost of External borrowing

Another sticky point is the cost of external borrowing from the external market. The report indicates that the current financial architecture creditor base system makes debt expensive and difficult to restructure.

It showed that private creditors accounted for 61% of developing countries' external public debt, while multilateral creditors accounted for 26% and bilateral creditors accounted for 14%.

In Africa, however, private creditors accounted for 44% of all external creditors, multilateral creditors accounted for 34% and bilateral creditors accounted for 23 per cent.

On the cost of borrowing, it is interesting to note that Germany between 2020 and 2024 borrowed on the international market at an interest rate of 0.8 per cent, the United States at 2.5%, Asia at 5.3%, Latin American and the Caribbean at 6.8%, while African economies borrowed at average interest rate of 9.8%.

A key issue most analysts in Ghana have complained about is the huge cost of borrowing, especially on the international market. 

Ghana had bonds trading at 19% before the economic crisis, a situation many market watchers had described as unsustainable.

People pay the Price

By 2023, interest payments interest on loans contracted by developing countries reached a peak of US$ 847 million from the 2010 figure of above US$300. 

Interestingly, these payments have doubled in relative to revenues, compounding their inability to service the loans.

For instance, net interest payments as a percentage of revenue increased from 4.4% in 2010 to 9.2%.

The Asia and Oceania regionals increased from 2.6% to 5.2%, while Latin America and the Caribbean saw an increase from 8.1% to 9.2%.

It is with this in mind that the United Nations has called for reform in the international Financial Architecture to make the system more inclusive.

Among some of the recommendations include tackling the high cost of debt distress and the creation of a debt workout mechanism to address the slow progress of the G-20 Common Framework for debt treatment due to creditor coordination challenges and the lack of automatic debt service suspension clauses.

Recommendation 

The report highlighted the urgent need for a more inclusive system to enhance the participation of developing countries in the governance of the international financial architecture.

It said the inequality imbedded in the current financial system, worsens the debt burdens of the world's poorest and most vulnerable nations, thereby widening the gap between rich and poor and hindering progress toward the Sustainable Development Goals.

It said nearly one-third of global public debt is held by developing countries such as Egypt, Mexico, Brazil, China, and India. 

“While public debt is increasing worldwide, it is outpacing the Gross Domestic Product (GDP) growth only in Africa, leading to severe debt burdens across the continent. Regions such as Africa, Latin America and the Caribbean, and Asia and Oceania have public debt levels exceeding 60% of GDP,” it said.

Context

Ghana and many other developing economies suffered from large external shocks and vulnerabilities from the aftereffects of the Global pandemic of 2020 compounded by fiscal and debt increases.

These developments led to the loss of international market access. The economy suffered from high depreciation of the Cedi, inflationary pressures, decreasing international reserves and low investor confidence.

The government had to beat a retreat to seek a three-year IMF programme in a bid to stem the tide of the economic squeeze.

It embarked on a domestic exchange programme in which investors on government-traded bonds received a haircut on their investments and the government had to restructure the domestic bonds tenure and interest payments.

According to the data, Ghana's debt was GH¢611.2 billion at the end of 2023, but it rose to GH¢626 billion in January 2024 and further increased to GH¢658.6 billion in February 2024. 

The increase in debt can be partially attributed to the depreciation of the cedi against major trading currencies.

Ghana, in 2022, began domestic debt restructuring of US$10.5 billion in local bonds with new ones as a precondition to seeking help from the IMF and also to restructure its external debts.

Inflation soared in 2022, a record high of 40.4% annually in October. It had since threaded downwards to 25 per cent as of April 2024.

The Cedi lost more than 50% of its value in 2022, pushing up the cost of Ghana's external debt.