Moody’s is predicting Ghana’s debt to hit 70 per cent of its Gross Domestic Product (GDP) this year.

In its latest release, Moody’s said its “debt projections include an assumption that these contingent liabilities add an additional 2% of GDP annually, implying a further increase in the debt ratio to close to 70% of GDP in 2020 from 64% in 2019. 

“How far and for how long the debt/GDP ratio rises will depend in part on the government’s success in restoring a fiscal surplus position in 2021, in preserving exchange rate stability and in renegotiating energy sector contracts.”

According to the ratings agency, the country’s financing pressures are rising, although they are not yet acute. 

The $3 billion Eurobond (4.6% of GDP) issuance in January and the $1 billion (1.5% of GDP) disbursement under the IMF’s Rapid Credit Facility (RCF) have provided an important external funding backstop for this year. 

However, the balance of payment pressures created by a wider current account deficit (projected at 4.5% of GDP in 2020) and by anticipated capital outflows from non-resident investors in the local currency market will weigh on net international reserves and on the stability of the currency with direct repercussions for government debt dynamics.

Against that backdrop, financing beyond immediate official creditor emergency support and the drawdown of oil saving funds is looking increasingly vulnerable. 

While not Moody’s current expectation, indications that Ghana’s government was likely to participate in debt relief initiatives which the rating agency concluded were likely to entail losses for private sector creditors would be negative for the rating.

In addition, the materialization of contingent liabilities in the energy sector from “take or pay” contracts with energy producers extending until 2023 will add to funding needs in foreign currency, depending on oil price developments. 

While stability in the nation’s power supply has been restored, according to the government’s Energy Sector Recovery Program (ESRP), in a scenario where these contracts are not renegotiated the government faces annual costs of between $1.6 billion (2.3% of GDP) and $2.6 billion (3% of GDP) from 2020-23 which, added to outstanding energy sector arrears of $2.7 billion (or 4.1% of GDP) at the end of 2018 could sum to around $12.5 billion, or about 14% of GDP by 2023.

Total debt stock

Ghana ended 2019 with a total debt stock of GH¢218 billion, according to Bank of Ghana’s December summary of financial and economic data. 

Breakdown of the debt numbers 

The GH¢ 218 billion total debt stock puts the country’s Debt-to-GDP Ratio at 63.0 per cent, the same figure projected by the IMF for the country. 

A breakdown of the debt numbers shows that $20.3 billion of the debt were secured from outside the country, this is about 32.5 per cent of the total value of the economy.  

On the other hand, GH¢105.5 billion was secured locally, this represents, 30.5 per cent of GDP.

The total cost of the financial sector cleanup was peg at GH¢10.7 billion, about 3.1 per cent of the GDP.

Rate of increase since December 2019  

The new debt numbers mean that since September 2019, the last time that Bank of Ghana released the debt numbers, the total debt stock had gone up by some GH¢9.4 billion. 

However, from December 2018 to December 2019 the debt stock went up by some GH¢44.1 billion.  

Reasons for the hike in Debt stock

The increase in the debt stock from September 2019 to December can be attributed to the cedi’s marginal depreciation and recent funds advanced towards the cleanup of the banking and non-banking sectors of the economy. 

The data shows that domestic debt component, from July 2019 to December 2019 went up from GH¢98.3 billion to GH¢105.5 billion.