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.