Monday, 15 February 2021

Be pragmatic in cutting cost of debt – Economist to gov't

 

 

Adnan Adams Mohammed

Economist have admonished managers of the economy to prioritize reducing the cost of debt going forward as Ghana's debt is above the International Monetary Fund's threshold of 70 percent of Gross Domestic Product.

Ghana's interest payment for 2019 stood at GHS26.3 billion, according to the 2020 mid-year budget statement. The amount was about 55% of the GHS54 billion budgeted total revenue and grants for the year 2020.

The figures further indicated that, whereas the domestic component of debt from January to November makes up about 38% of the country’s GDP, interest payment on the domestic debt alone for the year 2020 took up about 80% of the total interest payments. On the other hand, the external debt component which was about 36 percent of GDP, took up only about 20 percent of total interest payment. This shows that domestic interest rates are higher when compared with external interest rates. Speaking on the strategies to deal with Ghana’s debt situation, an economist with Databank has said, fiscal consolidation will be non-negotiable going forward.

“Once the debt stock remains high in the short to medium term the debt management now needs to focus aggressively on reducing the cost of debt. Because the cost of debt is also an important factor in driving up the debt stock", Databank economist, Courage Martey said in an interview.

"So you need to ensure that new debt that are incurred are coming in at a lower cost and that will create the platform for us to restructure the debt portfolio and take off expensive debt and reduce the risk of debt distress. And also reduce refinancing risks.”

Ghana's debt stock is now GHS286.9 billion as announced by Bank of Ghana Governor Ernest Addison, last week, when he chaired the Monetary Police Committee meeting to announce the policy rate.

He said: “The elevated fiscal path has impacted the stock of public debt which rose to 74.4 per cent of GDP (GHS286.9 billion) at the end of November 2020 compared with 62.4 per cent of GDP (GHS218.2 billion) at the end of December 2019. Of the total debt stock, domestic debt was GH¢147.3 billion (38.2 per cent of GDP), while external debt was GHS139.6 billion (36.2 per cent of GDP)”.

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