Saturday, 26 January 2019

Public debt rises to GHC173b

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Elorm Desewu

Recent economic data emanating from the Bank of Ghana, (BoG), indicates that Ghana’s total public debt has ballooned to GHC172.9 billion at the end of November, 2018 from GHC139.3 billion recorded in the same period for 2017. This represents 57.9 percent of the rebased Gross Domestic Product, (GDP) as against 54.3 percent of GDP recorded in November 2017.

The external component of the debt stock was US$18 billion representing 28.9 percent of the rebased GDP compared to US$17 billion which was 29 percent of GDP.

The domestic debt was GHC86.5 billion representing 29 percent of the rebased GDP compared with GHC64.2 billion which was 25 percent of GDP.

The recent rise in the public debt has been attributed largely to the cedi depreciation against the major trading currencies such the Dollar, Euro and the Pound Sterling.

For the 2018 fiscal year, the government continued with the implementation of the strategy for managing the public debt stock, with the sole objective of raising adequate financing at the lowest possible cost and prudent degree of risk. The strategy was also to meet other debt management goals of developing an efficient domestic capital market for government securities. The strategy for 2018 was built on the successes achieved in 2017, and targeted the lengthening of the maturity profile of domestic debt instruments. 

 Within the broad macro-fiscal context, Government’s debt management policy seeks to ensure that both the level and the rate of accumulation of debt are on a sustainable path, and that the debt can be serviced under various macroeconomic and financial stress conditions.

 Consistent with the debt management policies, ceiling on non-concessional loans was capped at US$750.0 million to finance infrastructure and other critical capital projects.

 The 2018 debt management strategy envisaged the issuance of medium to long term bonds and made provision for contingent liabilities from the financial sector in line with Government’s commitment to ensure a strong and resilient financial sector. The strategy also envisaged a sovereign bond issuance on international capital markets.

In line with the strategy, Government issued 3-Year, 5-Year, 7-Year and 10-Year Bonds to further lengthen the maturity profile of domestic debt. About GH¢9,900.0 million was also issued by Government to cover the bailout of the seven failed banks.

 The difficulties faced by emerging markets from the second half of 2018 also presented challenges to the smooth implementation of the strategy. The external contagion effect of the investor pull-out from emerging and developing economies affected non-resident investors participation in the domestic markets, and posed some stress on exchange rate markets. As a result, the approved strategy was redirected to focus on more active government activities on the secondary market. For this, government spent GH¢300.0 million to generate liquidity to facilitate trading on the secondary market.

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