Ghana’s debt to GDP ratio drops to 57.2%

Ghana’s Debt-to-GDP ratio has dropped to 57.2% according to the Monetary Policy Committee of the Bank of Ghana.

In the 2016 Annual Progress report, Ghana’s Total Debt to GDP ratio stood at 73.1% at the end of December 2017 with year on year debt accumulation rate of 36% in the erstwhile administration.

The situation resulted in an increasing interest burden, with interest payments alone consuming 45% of tax revenue and 6.8% of GDP in 2016.

The Akufo-Addo government upon assuming office realized the negative consequences this high rate of debt accumulation has on the economy which includes narrowing the fiscal space for the government to operate.

That is, with high debt to GDP ratio, the country is forced to use more resources to service old debts instead of investing in the economy.

 With the inherited debt strangling the economy, there was the need to implement prudent fiscal measures to reduce the debt stock of the economy. One of the measures was to accelerate the rate of economic growth whilst slowing the rate of debt accumulation.

Specific measures implemented as outlined by the 2017 budget statement include a reduction in fiscal deficit and debt re-profiling (involves borrowing at less expensive rates to replace more expensive debt at longer tenor).

As a result, the debt to GDP ratio declined from 73.1% at the end of December 2016 to 68.6% at the end of September 2017. The interest burden declined from 45% of tax revenue to 43.9% in September 2017. (2018 BUDGET FIGURES)

In this 2018 fiscal year, the Government again didn’t renege on its promise of debt sustainability. The approved 2017-19 Medium Term Debt Sustainability Strategy was strictly implemented. The strategy supported fiscal consolidation and tight monetary policy that minimizes cost and addresses portfolio risk. A vibrant domestic capital market that support domestic financing of the budget was the government’s priority.

The recent recognition of increased economic activity has contributed to a further reduction from 68.6% to 57.2%.

 Excluding the costs of bailing out distressed banks, the debt to GDP was 53.9 % of the rebased GDP. This implies that the debt Sustainability Strategy implemented is expectantly yielding the required results and has drastically reduced the rate of debt accumulation from 36% to 19.8%.

This gives hope that with persistent fiscal discipline as practised by the administration, debt to GDP ratio will further decrease and therefore freeing up more fiscal space for the government to undertake developmental projects.

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