Public Debt-GDP Crosses Sustainability Threshold

mona quartey

Mona Quartey – Deputy Finance Minister

Ghana’s public debt–GDP ratio has not only risen astronomically in the last few years, but has reached a level considered to be above the sustainability threshold, the Institute of Fiscal Studies (IFS) has disclosed.

In its latest report, titled: “Ghana: Implications of Rising Interest Costs to Government”, the IFS said“From 2016-2020, a total of $12.7 billion will be required to service the country’s debt and another $7.7 billion will be required in 2021-2025 to service debt. Together, it is projected that Ghana will need about $28.8 billion to service its debt from now up to 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 the total to $9.4 billion in 2015-2025, with the bulk of it amounting to 63.4 percent being interest on domestic debt.”

It said debt service absorbed 78.8 percent in 2014, adding that in relation to exports, however, debt service experienced large swings during the review period.

The debt-exports ratio also increased to 88.2 percent in 2013 but dropped to 78.7 percent in 2014.

Rising interest rates

It stated that government borrowing to finance large budget deficits in recent years has been one of the major factors that have caused interest rates in the country to rise significantly, increasing the cost of borrowing or debt interest costs.

“As borrowing increases, the government has to pay higher interest rates to the holders of its bonds. In Ghana’s case, increased borrowings by the government have pushed up interest rates because the market fears that there is a high chance of default on the part of government, and therefore demands higher interest rates in return for greater risk. Meanwhile, the higher interest rates on government bonds tend to push up other interest rates in the economy, increasing cost of credit with negative implications for investment and economic growth,” it said.

Debt situation puzzle


On Monday, Governor of the Bank of Ghana, Dr Henry Wampah failed to disclose the country’s total public debt stock.

That shocked journalists since the disclosure of the figure has been a common trend since the tenure of Dr Paul Acquah, a former Governor of the bank under the Kufuor administration.

Analysts believe the figure has crossed the dreaded 70 percent mark identified by International Monetary Fund (IMF) hence the failure to disclose it.

Others argued that government wants to hide it and massage it to its favour.

Calculations from the Central Bank

The total public debt, per calculations from the Bank of Ghana’s weekly publication of Government of Ghana’s Treasury Bill Results from Tender 1460 issued on 20th November, 2015, through to Tender 1469 held on 22nd January, 2016 and issued on 25th January, 2016, indicates that over GH¢10.30 billion was borrowed from both domestic and foreign investors.

As at November 13 last year, the government issues sold and the September 2015 public debt figure of GH¢92.2 billion put together indicated a total public debt of about  GH¢100.7 billion. Should the GH¢10.30 billion be added to the foregoing, the total public debt figure should be around GH¢111 billion currently.

By Samuel Boadi