The International Monetary Fund’s Resident Representative, Dr. Albert Touna-Mama, has said Ghana’s public debt situation puts the country in a very dire position.
The public debt stands at 215 billion cedis with the World Bank warning that the country is at high risk of debt distress.
Speaking at a forum organized by Graphic Business and Stanbic Bank in Accra on February 19, 2020, Dr. Touna-Mama, said the current ratio of the country’s debt servicing measured against its revenue is about 30 percent nearly double that of the country’s peers.
“When we think about debt and borrowing, I want to talk about the fact that we don’t only measure it with respect to GDP. An important metric that we look at and in the case of Ghana is a metric that is of concern, that is, debt service to revenue.”
“We use debt service to revenue as a proxy of how sustainable the debt of Ghana is. At the moment, that ration is close 30 percent. When we take that for countries of similar features, it should be below 18 percent. This is twice as much as what it should be. So, of course, we are concerned about the borrowing of Ghana,” he stated.
According to the Finance Minister, Ken Ofori-Atta, the country is expected to use GH¢21.7 billion which translates to about 5.4 percent of GDP to service interest on its debt.
Of this amount, domestic interest payments will constitute about 76.3 percent and amount to GH¢16.6 billion.
World Bank’s warning
The World Bank this month cautioned Ghana against piling its external debt and exceeding the sustainability threshold. According to the bank, Ghana is currently rated as a moderate to high-risk debt distressed country and so must tread cautiously.
Speaking to Citi Business News, the Country Director of Work Bank-Ghana, Pierre Frank Laporte, indicated that the country must not cross the acceptable thresholds of debt sustainability.
“Countries, especially developing countries have to borrow because most of us do not have adequate resources to develop. We have to borrow to develop, but you have to borrow responsibly. At the moment Ghana’s debt situation based on World Bank’s description is a country at a moderate rate to high risk of debt distress, so of course, the country has to be careful,” he said.
“…But the country is at a stage where things are critical. I am confident that the Finance Minister and his team are fully aware of that, as we discuss all the time. Borrowing is not a bad thing, but you have to borrow on the right terms, the right amount and in the right way. Countries have debt strategies, so like I said, I am confident that the Ghanaian authorities know what they’re doing.”