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Deal with debt distress risk: IMF advises Ghana

April 2, 2016, 12:49 p.m.

The International Monetary Fund (IMF) has expressed renewed concerns over Ghana’s deteriorating debt situation. 

According to the Fund, “Ghana is at high risk of debt distress and faces exceptionally high gross financing needs.”

In an exclusive email conversation with Business Finder, the fund recommended a change in the country’s borrowing strategy, to consider changing market conditions when assessing alternative debt instruments.

An IMF spokesperson pointed out that to support government’s aim at a primary surplus for 2016 which is set to bring the debt to a downward trajectory, the fiscal deficit will also need to be financed at the lowest cost, taking due  account of the risks. 

The Fund reminded government that “recently, yields on Ghana’s Eurobonds have increased to above double digits, making this borrowing option very expensive.”  This warning is timely as government prepares to go on another roadshow in April this year to convince investors to subscribe to its fifth Eurobond.

Ghana earned an astronomical 10.75 per cent yield on the fourth Eurobond issued last year for $1billion, a move that was criticised by analysts as too expensive.

Many are of the view, regrettably that with the country at high risk of debt distress coupled with the negative outlook prescribed by ratings agency, Fitch, investors will be unlikely to take anything less than the earlier 10.75 per cent.

The Bretton Woods Institution itself having praised government for sticking to the front-loaded fiscal consolidation albeit ambitious, insists that “reducing the debt burden and gross financing needs is a priority.”

Ghana’s total public debt stock, which as at December 2015 stood at GH$97bilion representing 72 per cent of the country’s Gross Domestic Product (GDP) has become a subject of concern for economists and analysts who are increasingly doubting Ghana’s 

The debt-to- GDP ratio has been found to be the highest amongst the country’s peers. The IMF warned that continued strong implementation of Ghana’s fiscal consolidation efforts in the 2016 budget will be critical to reduce financing pressures and gradually reduce the debt level.

According to Dr Raziel Obeng-Okon of GIMPA, analyses of Ghana’s revenue base as a percentage of its GDP and the interest payment as a percentage of revenue show that the current level of 72. 9 per cent public debt-to-GDP ratio is unduly high and should be a concern for all.

“Given our relatively low levels of revenues vis-à-vis high and rising expenditure, the high debt-to-GDP ratio may make it more difficult for Ghana in the medium term to pay its debts and this may lead creditors to seek higher interest rates when lending,” he pointed out.

Dr Obeng-Okon who lectures in Public Accounting warned the high ratio could also cause a panic in the domestic and international markets and credit rating agencies may reduce Ghana’s ranking further.

Barely a week after the interview with the GIMPA lecturer, Credit ratings agency, Fitch Ratings has warned that Ghana's fiscal and external deficits leave the country vulnerable to domestic and external shocks. The ratings agency affirmed Ghana's long-term foreign and local currency Issuer Default Ratings (IDR) at 'B' with a negative outlook. 

Source: Thefinderonline.com

Disclaimer: The views expressed in this news report do not necessarily reflect the position of the National Development Planning Commission (NDPC)

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