Wednesday, 21 April 2021

Cost of debt against tax revenue widening

 


 

 

 

Adnan Adams Mohammed

 

 

The April 2021 edition of the International Monetary Fund (IMF) Fiscal Monitor has indicated that Ghana’s cost of debt as compared to tax revenues is expected to widen averagely by 20 percent in the medium-term.

 

The report depicted that Ghana’s accumulated debt was stabilising but unfortunately cost of debt is growing by a quantum leap as compared to tax revenues performance.

 

According to the Breton Wood institution in its April 2021 Fiscal Monitor Report, despite the country’s debt stabilizing over the medium term, its debt service payments as a ratio of total tax revenues will continue to be on the rise.

 

At the recent Media General’s Economic Dialogue series, a Senior Technical Advisor at the Finance Ministry, Dr Samuel Nii Noi Ashong did noted that 35% of Ghana’s total revenues and grants are earmarked for debt service payments. However, the IMF report also cited other African countries to likely experience similar increments in their debt service payments as a ratio to tax revenues such as Kenya, Nigeria, and Zambia.

 

“Average debt is projected to stabilize over the medium term, with elevated debt service relative to tax revenues in many countries (exceeding 20 percent in Ghana, Kenya, Nigeria, and Zambia) and debt distress risks in several others,” stated the report.

 

According to data made available by the Central Bank, external debt alone stood at GHC141.8 billion, approximately $24.7 billion which is equivalent to 37 percent of GDP.

 

Domestic debt on the other hand is slightly higher at GHC149.8 billion at the end of 2020, about 39.1 percent of GDP.

 

The IMF further noted that despite an anticipated peak in debt levels in 2021, Ghana and some countries will continue to experience increments in their total debt stock levels.

 

In the case of Ghana, the country’s debt stock is expected to increase to 81.5 percent this year, 83.2 percent in 2022, and further to 84.8 percent, 86.0 percent and 86.6 percent in 2023, 2024 and 2025 respectively.

 

Ghana’s total public debt stock as at end-December 2020, reached GHC291.6 billion representing 76.1 percent of GDP.

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