Faced with wide fiscal and current account deficits, and a 72% Debt to GDP ratio (the 2015 Budget Estimates places it at 60.8% of GDP), Ghana’s short to medium term economic prospects have significantly dimmed as crude oil prices collapse, double digit inflation remain persistent, and the currency depreciates. The latitude for fiscal manoeuvre has tightened up for the Government of Ghana (GoG), and it faces hard choices in fiscal years 2015 and 2016, the latter being an election year.

Ghana has entered into talks with the International Monetary Fund (IMF) for a bailout, but despite the upbeat pronouncements by government officials that it will soon reach a deal with the IMF Board, the choices it faces are stark, whether it signs on or not to an IMF programme.  In our view, ultimately, the following are the broad short-to-medium term options available to GoG: 

(a). Make drastic cut backs in public sector expenditure (A bitter pill to swallow as an election draws near)

b). Increase its revenues by widening the tax base/net and improving on efficiencies in collection, not through more taxes

(c). Make better use of resources through prudent fiscal housekeeping and accountability on public expenditure, or

(d). All of the above.

It is in this context that we briefly review GoG’s intention, through the Bank of Ghana (BoG), to raise GH₵25.42 Billion in the First Half of the Year (January to June 2015) by issuing Bills of various maturities. In our view, this sends a bad signal to the broad market, significantly raises the level of systemic risks to the banking sector, worsens the fiscal constraints, increases the potential for more businesses to collapse (with the attendant job losses), and narrow the sources of future tax revenues.


1. Size of The Borrowings:

(a). The projected GH₵25.42 Billion to be raised represents an increase of 60.77% over GoG’s domestic borrowing through securities over the same period in 2014. (Table 1)

(b). It also represents an increase of 226.27% over the same period on 2012 (only about two years ago), and 115.08% in 2013 (only about one year ago (Table 1)

2. Cost of Borrowing:

The Average Rate at which GoG borrowed across securities of all maturities issued from 2012 to 2014 are as follows:

(a). 2012: 20.51%

(b). 2013: 20.80%

(c). 2014: 23.01%

The Average Rate covering securities of maturities from 91-Day to 1-Year issued over the seven auctions this year, 2015, is 24.91%. Some analysts project average rates to reach mid-30% by close of the year.

3. Government Expenditure:

(a). The Provisional Outturn for Total Government expenditure in 2014 was GH₵35.670 Billion (2015 Budget Estimates) (Table 2)

(b). It is projected that Total Government expenditure for the Fiscal Year 2015 will be GH₵41.222 Billion, representing a projected increase of 15.57% over that of 2014 (2015 Budget Estimates) (Table 2)

External to Domestic Debt Ratio:

In 2014, the mix of External to Domestic Debt in the Total Public Debt was as follows:

   – External: 58.32% (GH₵40.644 Billion)

   – Domestic: 41.68% (GH₵29.042 Billion)


Contrary to expectations, it appears that GoG does not intend to make the deep, significant cut backs in public expenditure that are necessary to reduce the stifling GH¢70 Billion public debt that analysts say is grossly understated. The expenditure projected in the 2015 Budget Estimates does not go far enough. GoG’s intention to dramatically increase domestic borrowing through treasury bills also sends signals that the pace of public sector expenditure is not about to slow down any time soon. Furthermore, the potential increase of 60.77% in domestic borrowing (securities) is inconsistent with the projected 16% rise in public expenditure as one would, all things being equal, expect all sources of debt to rise by a commensurate rate. GoG needs to provide further explanations for this.

More importantly, the increased domestic borrowing has implications which requires careful thought and action, including, but not limited to, the following:

1. Increase in Debt Stock:

There is already heated debate over whether Ghana has reached a tipping point in debt levels that can lead to serious economic consequences worse than it is currently facing. The proposed major increase in domestic borrowing can only make the situation worse, not less. The IMF has expressed deep concerns in that regard. As we have indicated, Ghana’s Debt to GDP ratio is about 72% (The 2015 Budget Estimates places it at 60.8% of GDP).

2. Credit Squeeze and Impact on Private Sector:    

(a). Currently, 42% of all GoG public debt is attributed to domestic sources. This has already crowded many private sector businesses out of the credit market, especially with Government Treasury Bills in the high 20s. All things being equal, and assuming no other debt (external and/or non-treasury bill sourced), the projected GH₵25.42 Billion to be raised will increase the Domestic Borrowing portion of the Public Debt to about 57.26%.

(b). The combined effect of a potential credit crunch to a private sector already struggling under a myriad of challenges, including rolling power cuts (Dumsor), high fuel prices, volatile exchange rate markets, and various taxes can lead to more job losses as, especially, manufacturing firms reduce production levels. Manufacturing contribution to Real GDP Growth has reduced by 8.5% points from 2013 to 2014 due to the same mix of issues.

3. Systemic Risks to Banking System:    

There is also a real, extant systemic risk to the entire banking system as it increases its holdings (assets) in GoG securities. Some banks, e.g. Ghana Commercial Bank, are already overexposed, with over 50% of assets in government securities. As GoG approaches the tipping point of leverage, the potential for its default increases, making the entire banking system very vulnerable. This is exacerbated by the fact that judging from pronouncements from both BoG and GoG (through the Ministry of Finance), it does appear that they have not averted their minds to the impact of actual, or perceived potential default on domestic debts.

4. Inflationary Risks:    

Upward inflationary risks will be heightened as government must find the money to service its debts: both interest and principal amounts. Government ordinarily will resort to increased taxes and money printing which will potentially increase inflation.

5. Inflation-induced Currency Depreciation:    

The potential upward inflationary risks will have a secondary impact on the exchange rate between our currency and other currencies, exerting a downward pressure on the Ghana Cedi. This is already happening.


The huge debt overhang, narrowing revenue streams, and other fiscal challenges, has already placed enormous strain on the economy and has led Ghana to commence discussions with the IMF for a potential bailout. It is our view that increased borrowing is not the solution to the fiscal constraints the economy faces. Government must be willing to make deep cuts in public expenditure while at the same time ensuring prudent use of its resources.

Given the depressed business environment, largely the result of rolling power outages (locally referred to as ‘Dumsor’) and a stifling raft of taxes, the most likely option for GoG is option ‘D’ above. An additional policy option will be to combine the reduction in public sector expenditure with tax breaks and incentives to businesses, especially the manufacturing and small business sectors, enabling them stay afloat, maintain jobs, and eventually become better sources of tax revenues in the future.