Ghana not heading for HIPC — Ato Forson
The Ministry of Finance has deplored claims that the country’s total public debt expressed in terms of its total productivity has reached unsustainable levels.
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While admitting that the economy was significantly geared, the ministry said the debt had not approached the 70 per cent threshold which could make the country’s economy highly indebted and poor, the situation which the country found itself in 2001 for which it opted for the Highly Indebted Poor Countries (HIPC) initiative, a debt relief measure.
A statement signed by a Deputy Minister, Mr Cassiel Ato Forson, and issued by the Ministry of Finance said the ratio of public debt to total productivity or Gross Domestic Product (GDP) increased from 59.9 per cent in January 2015 to 71.32 per cent in June 2015 and declined significantly to 62.3 per cent in July 2015.
“Over the past few years, Ghana’s debt stock has risen due mainly to exogenous factors affecting government revenues and the cedi depreciation. However, new debt management policies pursued by the government have started bearing fruits and will maintain a sustainable debt profile over the medium term,” it said.
The statement follows reports in sections of the media that the country’s debt levels have become unsustainable, equivalent to 70 per cent of the value of all goods and services produced within the economy.
Ghana's total public debt rose to GH¢94.5 billion ($23.7 billion) by end-June, equivalent to 71 per cent of gross domestic product (GDP), up sharply from 67 per cent the previous month due to currency depreciation, the central bank said last Friday.
Government’s debt management policy
The government has started a new debt management policy to restructure the maturity period of public debts. For both domestic and external debts, it is issuing new long-dated (medium to long-term) instruments, mainly bonds and notes, to repay maturing debts, thereby increasing the repayment period, while lowering the interest charged and the debt servicing burden on the economy.
The Minister of Finance, Mr Seth Terkper, had, at various fora and in the last two budgets, alluded to the fact that the government would henceforth fund capital projects with bonds and long-term funds, instead of the previous practice of using short-term instruments such as government treasury bills which matured in a maximum of two years, to finance such projects.
It is also setting up the Ghana Infrastructure and Investment Fund, which will look for funds and partner private sector entities and financial institutions to fund capital projects and infrastructure on its own balance sheet.
As part of the debt restructuring, the government issued a $1-billion, 10-year Eurobond on August 7, 2013 at a coupon rate (interest rate) of 7.875 per cent, part of which was used to swap the $750-million maiden Eurobond issued in 2007 at 8.5 per cent coupon rate which matures in September 2017.
This transaction led to an estimated annual saving of $1.375 million.
Last month, the government announced its intention to issue a GH¢500-million local bond to repay maturing short-term debts to prolong the tenor of the public debt.
According to the ministry, the fluctuation in the size of public debt in relation to GDP could be due to various factors, which in this case was attributable to changes in the exchange rate.
Exchange rate and debt stock
Mr Forson said the public debt expressed in million US dollars indicated a flat stock of external debt which was in fact even smaller in June and July this year, indicating a real reduction in the stock of external debt as of July 2015.
“The public debt in cedis indicates that actual domestic debt also remains flat for the period, indicating a minimal addition over the period. However, exchange rate movements have significantly affected the debt figures when expressed as a ratio of GDP. This trend is mimicking exactly exchange rate developments for the period,” the Deputy Finance Minister stated.
Total public debt fluctuated from $24.67 billion in January this year to $24.08 billion in February, $23.66 billion in March and $23.03 billion in April.
It, however, reduced to $22.51 billion in May, $21.96 billion in June and back to $24.06 billion in July 2015.
Due to changes in the value of the cedi against the dollar (volatilities) which either strengthen or weaken the cedi, the local currency equivalent of the debt came to GH¢79.98 billion in January (when the cedi was GH¢3.24 to the dollar) to GH¢88.67 billion in April (when a dollar was pegged to GH¢3.85); GH¢95.09 billion in June (when the dollar was GH¢4.33) and reduced again to GH¢83.17 billion at the end of July because the cedi gained value, exchanging at GH¢3.46 to the dollar.
As a result, the debt to GDP ratio has been fluctuating from 59.98 per cent of GDP in January to 62.79 per cent in February and averaged at 66.52 per cent between March and April.
The ratio moved up slightly to 67.53 per cent of GDP in May; 71.32 per cent in June (as a result of the high exchange rate of GH¢4.33 to the dollar) before easing down to 62.38 per cent of GDP in July this year.
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The public debt is made up of both domestic debt (usually paid in cedis) and external debt (paid in foreign exchange, usually the US dollar).
This means changes in the exchange rate can affect the level of debt as a ratio of the size of the economy.