Public debt now 66.4% of GDP
Adnan Adams Mohammed
Official figures from the ministry of finance as presented
to parliament now puts Ghana’s total public debt stock at GH¢255,727.1 million
(equivalent of US$45,486.1 million). This is almost 66.4 percent of Gross
Domestic Product (GDP).
Finance Minister, Ken Ofori-Atta delivering the 2020
mid-year budget review, last week, told Parliament that, consistent with the
front-loading of the government’s fiscal operations, the financing needs of the
government were also front-loaded.
The government is touting its ability to raise US$3 billion
from the International Capital Market in the first 2 months of the year as well
as the IMF’s US$1 billion rapid credit facility executed in April 2020, making
the total external facility within first four month of the year US$4.0 billion.
Unfornately, the government claims the accumulating of debts as a result of its
‘good leadership and international goodwill brought about by 18 efficient
management of the economy’.
“Taking into consideration all these developments, the
provisional debt stock as of end-June 2020 stood at GH¢255,727.1 million
(US$45,486.1 million), representing 66.36 per cent of GDP”, he informed
Parliament.
The increase, he said, “was mainly as a result of a Eurobond
issuance of US$3.0 billion in February 2020, exchange rate depreciation,
frontloading of expenditures and the COVID-19 effect which increased the cedi
equivalent of the outstanding debt stock”.
The total debt stock was made up of GH¢134,888.9 million
(US$23,992.6 million) and GH¢120,838.3 million (US$21,493.4 million) of
external and domestic debt accounting for approximately 52.7 per cent and 47.3
per cent of the total public debt stock, respectively.
As a percentage of GDP, external and domestic debt
represented 35.00 per cent and 31.36 per cent, respectively.
Mr Ofori-Atta reported to the house that “as you may recall,
the government obtained the approval of this august House in December last year
to raise up to US$3.0 billion to finance growth-oriented expenditures in the
2020 budget (including restructuring the energy sector) and also to conduct
liability management operations”.
“Based on the approval, Ghana became the first-ever country
on the African continent to issue a 41-year bond and a second tri-tranche bond
in the history of the country. Ghana successfully raised US$3 billion in the
international capital markets in three tranches of 6-year, 14-year and 41-year
Eurobonds of US$1.25 billion, U$1.0 billion and US$750.00 million, respectively
on 4th February 2020. The 6-year, 14-year, and 41-year bonds were priced at
6.375 per cent, 7.875 per cent and 8.750 per cent, respectively”.
“Mr. Speaker, this transaction was a landmark achievement in
many respects as the bond came with the lowest ever coupon rate for Ghana and
first 41-year bond tenure in Africa. In fact, despite the initial concerns over
the COVID-19 pandemic, and its potential adverse impact on market conditions
for Emerging Markets, the order book was five times oversubscribed”, the
minister noted.
This translated into a peak order book, in excess of US$15
billion and came on the heels of the 7 times oversubscription for the 2019
Eurobond, he added, noting: “Mr. Speaker, in line with the use of proceeds
approved by Parliament, an amount of US$2.00 billion was earmarked to finance
growth-oriented expenditures, US$1.0 billion for restructuring the energy
sector in the 2020 budget and the remaining US$1.00 billion for liability
management operations. Already, a buyback of US$523.05 million of the maturing
2023 Eurobond has been carried out”.
Read below the other components of the government’s
macroeconomic performance from Jan - June 2020 as presented by the finance
minister:
I now report on the macroeconomic performance for the first
half of 2020. Mr. Speaker, the following macroeconomic targets were set for
2020: • Overall real GDP growth rate of 6.8 per cent; • Non-Oil Real GDP growth
rate of 6.7 per cent; • End-period Inflation rate of 8.0 per cent; • Overall
fiscal deficit of 4.7 per cent of GDP; • Primary surplus of 0.7 per cent of
GDP; and • Gross international reserves to cover at least 3.5 months of imports
of goods and services.
Economic growth
Mr. Speaker, provisional estimates released by the Ghana
Statistical Service (GSS) shows that overall real GDP growth was 4.9 percent in
the first quarter 2020 compared to 6.7 per cent over the same period in 2019.
Growth in the non-oil sector was 4.9 per cent compared to 6.0 per cent in the
corresponding period of 2019. 14 61. The Agriculture Sector recorded a growth
of 2.8 per cent in the first quarter of 2020 compared to 2.2 percent during the
same period in 2019. Industry Sector recorded a growth of 1.5 percent in the
first quarter of 2020 compared to 8.4 percent during the same period in 2019.
Growth in the Services Sector was strong at 9.5 percent in the first quarter of
2020 compared to 7.2 percent recorded during the same period in 2019.
Inflation
Mr. Speaker, headline inflation remained flat at 7.8 percent
from January until March 2020. Inflation, however, rose to 10.6 percent in
April and further to 11.3 percent in May, reflecting the panic-buying that
preceded the market fumigation exercises across the country and the partial
lockdown in the two largest cities, Accra and Kumasi. Inflation has declined
marginally to 11.2 percent in June as pressure on food prices begin to decline
due to the easing the restriction.
Monetary Aggregates
Mr. Speaker, from the beginning of the year to May 2020,
growth in broad money supply (M2+) has slowed down, increasing by 6.0 percent,
compared with a 7.0 percent increase over the corresponding period in 2019.
Credit advanced by banks to public and private institutions also decreased for
the first five months of the year, as demand and supply for loans have dropped
due mainly to the uncertainties created by the COVID-19 pandemic and decline in
aggregate demand.
Interest rates
Mr. Speaker, the Monetary Policy Committee of Bank of Ghana
reduced the Monetary Policy Rate (MPR) by 150 basis points to 14.50 percent in
March 2020 as part of broad measures to reinvigorate economic activity. The
interbank rate declined from 15.2 percent in December 2019 to 13.8 percent in
June 2020, reflecting the reduction in the MPR in March, 2020 and improved
liquidity conditions in the banking sector. Similarly, interest rate on the
91-day Treasury instruments declined to 13.97 percent in June 2020, from 14.69
percent in December 2019. Average lending rate also decreased to 21.95 percent
from 23.59 percent over the same comparative period, reflecting improved
liquidity conditions in the banking sector and constrained demand for loanable
funds.
Balance of Payments
Mr. Speaker, the current account recorded a surplus of
US$199.88 million (0.3 percent of GDP) in the first quarter of 2020, up by 12.4
percent from US$177.76 million (0.3 percent of GDP) during the same period in
2019. The increase in the current account surplus was influenced largely by
improvements in the trade balance as well as current transfers. The trade
balance recorded a surplus of US$1,043.29 million compared to a surplus of
US$1,178.26 million in the corresponding period of 2019, mainly on account of a
sharp decline in import growth, which more than outweighed the fall in exports.
As a result of developments in the external sector, the overall balance of
payments recorded a surplus of US$1,476.46 million compared to a surplus of
US$2,997.31 million recorded in the first quarter of 2019.
International Reserves
Mr. Speaker, the country’s Gross International Reserves
stood at US$9,171.36 million at the end of June 2020 from a stock position of
US$8,418.08 million as at the end of December 2019. This was sufficient to
provide 4.3 months of imports cover compared to 4.0 months of imports cover as
at December 2019.
Exchange Rate
Mr. Speaker, the Ghana cedi started the year strongly,
appreciating by 4.5 percent on a year-to date basis by the end of February 2020
on the back of the US$3billion sovereign bond issue, strong macroeconomic
fundamentals, and BOG’s forward auction sales, among others. However, the
deterioration in financial market risk sentiment due to the spread of COVID-19
as well as the seasonal demand pressures from the energy and corporate sectors
weighed heavily on the cedi. On a year to date basis, the cedi depreciated by
2.4 percent against the dollar and the euro in June 2020 but appreciated by 4.5
percent against the Pound Sterling, compared to a depreciation of 8.3, 7.9 and
7.6 percent against the dollar, the Euro and the Pound Sterling respectively
over the same period in 2019. This is the lowest depreciation of the currency
in an election year and especially remarkable in these COVID times. We thank
God for the foresight in issuing and an Eurobond in February.
Fiscal Performance
Mr. Speaker, the implementation of the government’s fiscal
policy for 2020 has been greatly impacted by the outbreak of the COVID-19
pandemic. Provisional fiscal data for the first half of the year show that
revenue mobilisation fell short of target by 26.0 percent, 16 resulting mainly
from shortfalls in oil revenue, customs receipts and non-oil Non-Tax revenues.
Let me however congratulate GRAs leadership and tax division for exceeding
their tax target by GHC 600 million. Expenditure execution, on the other hand,
was faster than programmed due to the emergency spending on the various
COVID-19-related programmes.
Mr. Speaker, these developments pushed our financing
requirements above the programmed limits for the period to enable us address
these emergency expenditure pressures. Consequently, the fiscal deficit for the
period widened from a programmed target of 3.1 percent of GDP to 6.3 percent of
GDP. The corresponding primary balance for the period was in deficit of 3.3
percent of GDP, compared with a targeted primary deficit of 0.0 percent of GDP.
Revenue Performance
Mr. Speaker, Total Revenue and Grants for January to June
2020 amounted to GH¢22,007 million compared with a programmed target of
GH¢29,759.1 million resulting in a shortfall of 26.0 percent or a performance
rate of 74 percent. This represents a nominal decline of 6.8 percent over the
corresponding period in 2019. 71. Mr. Speaker, non-oil tax revenue, comprising
taxes on Income and Property, Goods and Services and International Trade,
amounted to GH¢16,733 million or 4.3 percent of GDP, 16.2 percent below the
programmed target of GH¢19,952 million or 5.2 percent of GDP. The lower than
programmed performance in non-oil tax revenue was driven by the
underperformance of non-oil tax handles such as Domestic VAT, Petroleum Excise
taxes, Domestic National Health Insurance Levy, and GETFund Levy. However,
personal income tax and Communication Services Tax both out-performed their
respective targets for the period.
Mr. Speaker, Revenue from upstream Oil and Gas amounted to
GH¢1,993 million (0.5% of GDP), 55.4 percent lower than the programmed target
of GH¢4,468 million. This was mainly on account of lower volumes and
significant drop in crude oil prices on the international market.
Expenditure Performance
Mr. Speaker, Total Expenditures (including arrears
clearance) for the period amounted to GH¢46,352 million or 12.0 percent of GDP
compared with the programme target of GH¢41,554 million or 10.8 percent of GDP.
Mr. Speaker, with the exception of interest payments and
Grants to Other Government Units which were below their respective targets,
compensation of employees, goods and services and capital expenditure were
above target, due to the additional spending requirements in relation to the
COVID-19 pandemic.
Overall Budget Balance and Financing
Mr. Speaker, the result of Government’s fiscal operations
resulted in a cash basis deficit of GH¢24,345 million, or 6.3 percent of GDP,
compared with the programmed target of GH¢11,794 million, or 3.1 percent of GDP
for January to June.
Mr. Speaker, the Overall Budget Balance was financed from
both domestic and external sources. Total Domestic Financing amounted to
GH¢21,786 million, equivalent to 5.7 percent of GDP, and constituted 89.5
percent of the total financing. Foreign financing amounted to GH¢2,560 million,
some 0.7 percent of GDP, against a target of GH¢15,100 million or 3.9 percent
of GDP.
Mr. Speaker, the Primary Balance recorded a deficit
equivalent to 3.3 percent of GDP, higher than the programmed deficit of 0.9
percent of GDP mainly due to lower-than programmed revenues and faster
execution of expenditures.
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