Ghana remains in debt distress despite ongoing restructuring programme – IMF

IMF Photo/Kim Haughton

Ghana remains in debt distress with its current position assessed as unsustainable, the International Monetary Fund (IMF) has revealed in its Staff Report on Ghana dubbed “2023 Article IV Consultation”.

“Pending completion of the debt restructuring, the attached Debt Sustainability Analysis (DSA) continues to show large and protracted breaches to the standard thresholds”, the IMF mentioned.

Given the ongoing debt restructuring and the large protracted breaches to the DSA thresholds, the Fund said in the Staff Report submitted to the Executive Board that Ghana remains in debt distress as the DSA shows that the debt is unsustainable and unchanged from the one published in May 2023.

A team from the IMF on October 6, 2023, held a meeting with the Government of Ghana on policies underpinning the IMF arrangement under the Extended Credit Facility (ECF) programme.

Background

In 2023, the government began a programme to restructure Ghana’s debt as part of measures to bring it to sustainable levels. This was a criteria to secure the IMF programme.

The authorities’ comprehensive debt restructuring strategy was aimed to restore a “moderate” risk of debt distress under the IMF-WB Debt Sustainability Framework for low-income countries (LIC-DSF).

The restructuring also targeterd external debt service relief during the programme from the period (2023-2026) to help close the external financing gap and the domestic debt restructuring was designed to reduce domestic financing pressures significantly.

Ghana’s Debt Sustainability Analysis

The IMF added that the macroeconomic framework underpins the Debt Sustaining Analysis and the staff baseline scenario is based on the macroeconomic trajectory envisaged under the Fund-supported programme aimed to restore macroeconomic stability and debt sustainability in the medium term.

Ghana’s fiscal and external positions deteriorated significantly in the wake of the Covid-19 pandemic, the tightening in global financial conditions and the war in Ukraine.

These external shocks, combined with pre-existing fiscal and debt vulnerabilities, the Fund said pushed public and external debt up. To this end, Ghana lost international market access in late 2021, and the macroeconomic situation became more challenging in 2022, with large losses in

According to the Fund, the large fiscal deficits and the economic slowdown in the wake of the pandemic led to an increase in public debt from 63.0% of Gross Domestic Product (GDP) in 2019 to 93.3% of GDP at the end of 2022.

Domestic debt also reached 50% of GDP in 2022, of which 16.0% of GDP was held by the Bank of Ghana, while public external debt stood at 43.3% of GDP.

Managing debt and corrective measures

The IMF noted that the authorities have been implementing a comprehensive debt restructuring, which aims at achieving debt sustainability and a moderate risk of debt distress under the LIC-DSF framework by bringing debt stock and flow ratios down to their respective thresholds.

This includes “reduction in the PV of total debt-to-GDP and external debt service-to-revenue ratios to 55% and 18%, respectively, by 2028”.

The report was also of the view that the Ministry of Finance should increase its surveillance of debt issuance by State Owned Enterprises and other public entities “Monitor and prevent over collateralization of debt issuance”.