The Economist Intelligence Unit is warning of a continuous high cost of borrowing, making it harder for governments including Ghana to issue and service their debts.

In the developed world, debt stabilisation following years of massive fiscal stimulus will remain a cause for concern for investors, especially in countries with high levels of debt and few plans to consolidate their public finances like Italy, it said in its latest Global Outlook Report.

“The US will also be in the spotlight, given a ballooning budget deficit and rising debt/GDP ratio. In the developing world, new sovereign defaults are possible. The most exposed economies are in Africa, reflecting high indebtedness, heavy external debt service burdens and stretched public finances. Drawn out negotiations with multiple creditors over the restructuring of existing debts accentuate these risks”, it mentioned.

Furthermore, it said Argentina and Ecuador are in the spotlight in Latin America as they could face repayment difficulties, particularly if policy becomes less market friendly and external financing trickier to secure.

Again, South Asian economies, including Maldives, Pakistan and Sri Lanka, will be countries to watch in Asia.

Debt servicing to absorb critical portions of government budgets

The report further said that debt servicing will absorb critical portions of government budgets, limiting fiscal space for more productive investment.

“Rising interest payments as a share of GDP [Gross Domestic Product] will probably squeeze the fiscal space for government spending in areas like healthcare and education. Rising borrowing costs have also made it more difficult for countries with high levels of debt to finance extra spending by issuing more debt on the bond markets.”

In the context of rising geopolitical tensions, new global security challenges and green transition goals, the UK-based firm said governments will need to find new sources of revenue to finance new policy priorities like defence.