Finance Minister Ken Ofori Atta
Available information from a comparative analysis of the management of the country’s debt from 2013 to 2016 under the erstwhile John Dramani Mahama administration, as against 2017 to 2020, indicates that the skilful management of the financial sector has saved the nation’s economy from the ditch it was heading into.
The analysis shows that even though Ghana’s debt stock in nominal terms has gone up, the appointment of Ken Ofori-Atta as Minister of Finance was timely to save the nation from what could have been a precariously dire financial challenges.
2013 to 2016
The Akufo-Addo administration was bequeathed substantial arrears owed to contractors and other government service providers in excess of GH₵11 billion, energy sector ‘pay-or-take contract commitments of over GH₵6 billion a year, and financial sector toxic assets which were sitting with failed financial institutions in excess of GH₵21 billion.
Also, Government was borrowing heavily at the short-term end of the treasury market at an average interest above 20 per cent.
Between 2012 and 2016, total public debt more than tripled, from GH₵36bn ($8.6bn) to GH₵122.6bn ($29.3bn). As a share of GDP, it rose from 47.8 per cent to 72.5 per cent over the period and on a weekly basis, about GH₵1billion of already contracted domestic debt was maturing.
This meant that about GH₵4 billion of domestic debt matured per month at a time when the country’s tax revenue per month was just about an average of GH₵2.2 billion.
The situation was so dire that, for the first time in Sub-Saharan Africa, Ghana obtained a World Bank Partial Risk Guarantee (PRG) to issue the Eurobond in 2015, mainly to refinance short-term domestic debt.
The total projected fiscal expenditure for 2016 was GH₵43.9 billion. That represented 26 per cent of the GDP, but rather exceeded the target spending of GH₵50.3 billion, representing 30.2 per cent of the GDP.
A report, jointly published by seven organisations that constituted Jubilee Debt Campaign in 2016, revealed that Ghana was in a debt crisis because the country was losing around 30 per cent of government revenue in external debt payments each year.
The report attributed the situation to a combination of the fall in the price of commodities and the loans not being used well enough to ensure they could be repaid.
Before the Mahama-led NDC government exited power, the interest paid on Ghana’s debt was over GH₵14 billion in 2016
The Ofori-Atta legacy
Upon assumption of office of the Akufo-Addo government, Mr Ken Ofori-Atta announced a debt re-profiling agenda, and Ghana issued the first 15-year bond in April, and a second 7-year bond.
The provisional interest savings arising from Government’s implementation of the liability management programme, by re-profiling domestic debt, was estimated at GH₵612 million for 2017.
This re-profiling did not add to the debt stock, but rather replaced existing debt as per the gross financing requirements, lowering the rate of debt accumulation.
Between 2017 and 2020, Ghana paid over GH₵80 billion as interest on the public debt.
Interest cost on these debts had increased from GH₵9.6 billion to GH₵14.9 billion in 2017 and the public debt stock as at the end of 2018 hit GH₵173.2 billion or $35.92 billion
In 2018, of the GH₵37.8 billion raised in tax revenues, GH₵21.1 billion was used to service interest payments alone.
This means that Ghana was spending close to 55 per cent of tax revenue to service interests on loans alone.
In 2019, interest payments cost the nation about GH₵19.756 billion on loans borrowed, and GH₵24 billion paid in 2020.
The available data shows that Ghana’s revenues are consumed by wages and salaries, interest payments on amortisation and statutory payments, thus accounting for 99.6 per cent of government revenues.
Over the past four years, the Government worked assiduously to propel the economy to a higher growth path to sustain the development agenda of a Ghana Beyond Aid, while also making effort to consolidate the gains made in the area of macroeconomic stability.
Banking sector crisis
While doing that, an asset quality review carried out by the Bank of Ghana (BoG) in 2015 and 2016 revealed severe challenges with solvency, liquidity and asset quality in Ghana’s banking industry, with some banks showing significant under-provisioning and capital shortfalls.
A regulatory crackdown on poor business practices and weak capital positions in Ghana’s banking sector resulted in a series of market exits since August 2017.
To build a more sustainable banking industry, the Minister of Finance borrowed GH₵21.6 billion to pay for the banking sector clean up to save a collapsing financial sector, and protected 4.6 million depositors and 81,700 investors.
Within the last four years, Government paid GH¢12 billion in excess energy capacity charges inherited in 2017 and also settled substantial part of the GH¢11 billion outstanding arrears bequeathed to it.
Other debt and Covid-19
The Finance Minister was also faced with funding for the implementation of the Free Senior High School policy among other 15 flagship programmes initiated by the government.
Presenting expenditure on Appropriation for January 1, 2020, to March 31, 2021 to Parliament, Mr Ofori-Atta announced that government had invested in excess of GH¢15.7 billion into key flagship programmes.
Apart from that, some analysts have also attributed the increasing cost of servicing the national debt in recent times to the shock occasioned by the novel coronavirus pandemic.
That notwithstanding, the Ministry of Finance rolled out a number of solutions to help reduce the impact of the pandemic on the economy.
Measures put in place included the use of low-cost debts to retire comparatively costly ones; the development of a robust domestic debt market to create space for low-cost debts; and an increased resort to bilateral and multilateral sources for loans.
The government also adopted a debt management strategy which makes it borrow at least cost and at a prudent level of risk.
The public debt stock as at the end of November 2020 stood at GH₵286.9 billion, representing 74.4 per cent of Gross Domestic Product (GDP).
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