A new report by the Standard Bank, parent company of Stanbic Bank Ghana, has cautioned the government on its rising debt levels.
In its March 2021 Flash Note of the African Markets Revealed (AMR) report, it noted that the pace of growth of external commercial debt over the past few years had been alarming, hence the need for the government to do something about it if the country was to return to the fiscal consolidation path.
The report highlighted that although the country’s debt might seem sustainable, albeit with high risk of debt distress, the fast pace of growth of external commercial debt over the past few years called for caution.
Debt-to-GDP levels rose to 76 per cent in 2020 and could well hover around those levels in 2021 should GDP growth improve as expected.
“The split between domestic and external debt is almost even, at a 51:49 ratio. Moreover, commercial creditors, including Eurobond creditors, now account for nearly 50 per cent of the external debt composition, underscoring debt investors’ sustainability concerns,” the report indicated.
Fiscal consolidation may take four years
The report further indicated that the country might have to wait till 2024 to return to its deficit threshold of five per cent.
It, however, noted that that was not an isolated case as most African economies were expected to see fiscal consolidation between two and four years.
“The path to fiscal consolidation may take a further four years as the government does not expect to return to the Fiscal Responsibility Act threshold of five per cent of GDP until at least 2024.
“In fact, most African economies foresee some two to four years to fiscal consolidation given the disruption to economic activity and consequent impact on government revenues amid rising social costs. However, fiscal consolidation faster than that will be desirable given high interest payments and debt service costs,” the report indicated.