Ghana’s Soaring Public Debt Raises Concerns as IMF Bailout Aims to Stabilize Economy

Ghana’s public debt has seen a staggering 20% increase in a mere four months, largely attributed to the inclusion of short-term loans provided by the central bank to the state.

The Bank of Ghana revealed that the debt, which does not incorporate state-owned enterprises obligations, surged to a whopping 569.3 billion cedis ($49.7 billion) by the end of April.

This surge came after the central bank’s overdraft to the government was securitized in December 2022, adjusting the debt figure from a previous estimate of 434.6 billion cedis to 473.2 billion cedis.

Although Ghana’s obligations as a ratio of gross domestic product (GDP) decreased to 71.1% in April from 77.5% in December, concerns over the sustainability of the nation’s debt remain at the forefront of economic discussions.

Ghana’s economic challenges have been further compounded by its eurobond default earlier this year. Seeking to stabilize the economy and mitigate the debt burden, the country initiated a debt restructuring plan in line with a $3 billion bailout program approved by the International Monetary Fund (IMF) in May.

In an effort to make its debt more manageable, Ghana completed the first phase of a domestic debt exchange in February, allowing investors to exchange 87.8 billion cedis in obligations for new securities with lower interest rates.

This move is expected to provide some relief, especially considering that the average interest rate on the new notes dropped to as low as 8.35%, compared to the previous 19% on the old notes.

As the country continues its restructuring efforts, investors are bracing for reduced coupons on $1.5 billion worth of domestic dollar bonds and cocoa bills. Also, ongoing discussions are being held with local pension funds, bilateral partners, and eurobond holders to renegotiate and reorganize the country’s obligations.

Ghana external debt has increased to 321.4 billion cedis at the end of April from 240.9 billion cedis in December, while domestic debt rose to 247.9 billion cedis from 232.3 billion cedis over the same period.

On a positive note, Ghana’s budget deficit in the first five months of the year has significantly improved, dropping to 1.8% of GDP from 4.2% compared to the same period the previous year. The primary balance also saw an improvement, narrowing to a deficit of 0.7% of GDP from a 1.2% deficit.

However, the country faces challenges in its banking sector, as non-performing loans rose to 18.7% in June from 14.1% a year ago, leading to a drop in the capital adequacy ratio to 14.3% from 19.4%.