Ghana’s public debt was 80% to GDP during Covid-19 pandemic – IMF Explains

The International Monetary Fund (IMF) has reiterated that Ghana’s public debt increased from 65%  to 80% of Gross Domestic Product during the period of the Covid-19 pandemic.

This is contrary to the government’s figures that public debt to GDP was about 73% of GDP.

In a Frequently Asked Questions (FAQs) session, the Fund said at the same time, the government’s fiscal efforts to preserve debt sustainability were not seen as sufficient by investors, leading to credit rating downgrades, non-resident investors exit from domestic bond market and loss of access to international capital markets.

“These adverse developments, further exacerbated by the price and supply-chain shocks from the war in Ukraine, have led to a large exchange rate depreciation, a surge in inflation (29.8% year-on-year inflation in June) and pressure on foreign exchange reserves in the past months. In this context, the government has requested assistance from the IMF, and we have kick-started the initial discussions on how to best address Ghana’s challenges”.

“An IMF-supported programme aims to provide space for Ghana to implement policies which will restore macroeconomics stability and anchor debt sustainability while protecting the most vulnerable parts of the population. It should help create the conditions for inclusive and sustainable growth and job creation. This will help strengthen policy credibility, alleviate exchange rate pressures, and provide catalytic effect on financing”, it emphasized.

Type of lending programme for Ghana

The Fund said its various lending instruments are tailored to different types of balance of payments need as well as the specific circumstances of a member country

Therefore, it pointed out that “we are discussing with the Ministry of Finance and the Central Bank about the type of facility that would best fit Ghana’s needs.

The previous arrangement in Ghana was a three-year ECF in 2015-2018, which was extended by a year to April 2019.

Does Ghana need debt restructuring?

The Fund said together with the World Bank it still needs to conduct a thorough update of the debt situation through a new Debt Sustainability Assessment, which will then be presented to its Executive Board when it considers the Ghana programme request.

As background, it added that the last DSA published in the 2021 Article IV Staff Report concluded that: “Public debt was sustainable conditional on a rigorous and credible implementation of the authorities’ medium-term consolidation plan to put debt on a declining trajectory and ensure continued market access.”

Will the programme result in cutting in the free senior high school, others?

The IMF said it still at an early stage in the discussions, but it believe that the free Senior High School (SHS) is an innovative policy that needs to be protected, adding “in general, IMF-supported programs seek to boost social spending while encouraging both efficiency and sustainability”

“As discussed above, the IMF-supported program would aim at protecting the vulnerable and creating conditions for an inclusive growth”, it noted.

Objectives of an IMF programme  

The Fund said the goal of the government’s home-grown programme, which would be supported by IMF financing, is to restore macroeconomic stability and anchor debt sustainability, support the credibility of government policies, restore confidence in the central bank’s ability to manage inflation and accumulate foreign exchange reserves to help the currency withstand headwinds.

Specifically on the fiscal sector, it stressed that, an important policy objective would be to increase revenues, critical for debt sustainability while safeguarding spending on health, education, and social protection.