Ghana’s debt-to-GDP for 2020 was 78% not 76.1% - IMF 'exposes' government

The International Monetary Fund (IMF) has revealed Ghana’s public debt as a percentage of Gross Domestic Product (GDP) for 2020 was 78 percent.

According to the IMF, the rise in the debt stock can be attributed to the inclusion of some GH¢7.63 billion costs incurred in the energy sector which was somewhat excluded by government in its calculation of the total debt stock.

This however paints a different picture of the public debt figures as quoted by government institutions such as the Bank of Ghana, Ministry of Finance, who put the figure at 76.1 percent for the period.

The revelation was made when the IMF revealed its May 2021 Article IV Consultation paper following a visit by a team of experts to Ghana from April 28 to May 12, 2021.

Leader of the Fund’s technical mission, Carlo Sdralevich in a statement said, “Government interventions in 2020 also exacerbated pre-existing fiscal rigidities and public debt vulnerabilities. The government deficit, including energy and financial sector costs, reached 15.5 percent of GDP, while annual gross financing needs exceeded 20 percent of GDP. Public debt rose to 78 percent of GDP in 2020, from 64.4 percent in 2019, including ESLA of GH¢7.63 billion in 2020.”

The Fund further admonished Ghana to deepen its path to fiscal consolidation around debt and debt service reduction whiles also praising government’s efforts in effectively managing the crisis brought on by the COVID-19 pandemic.

According to government stats, as at end-December 2020, public debt stood at GH¢291.61 billion, representing 76.1 percent of GDP.

This huge debt accumulation, partly caused by the pandemic, has increased the government’s interest expenditure to nearly half of its total revenue in 2021, raising concerns about the crowding out of much-needed spending on investment and social services.

Read the IMF Mission's Article IV Consultation Paper:

An International Monetary Fund (IMF) mission led by Carlo Sdralevich held consultations under the Article IV during April 28 – May 12, 2021 through virtual meetings. At the conclusion of the mission, Mr. Sdralevich issued the following statement:

“Ghana has managed very effectively the COVID-19 outbreak in the country, and thus succeeded in protecting lives. Almost 93,000 cases have been confirmed, and unfortunately 780 people have died as of today. The launch of mass vaccine rollout has been a breakthrough, with the administration of approximatively a million doses as of end-May.

“The impact of the pandemic on the economy has been severe. Real GDP growth slowed to 0.4 percent in 2020 from 6.5 percent in 2019, due to lower activity in the extractive industries and a collapse in hospitality and retail services, including the informal sector that especially employs female workers. Inflation spiked to double digit because of food price pressures, before falling to 8.5 percent in April 2021.

“Policy interventions in 2020 were also critical to safeguard livelihoods and paved the way for a faster rebound of economic activity. Real GDP growth is projected at 4.8 percent in 2021, driven by a rebound in mining and services. Inflation is expected to remain around the central bank’s target of 8 percent by end-2021. The CARES program has the potential to be transformative and inclusive for the Ghanaian economy, buttressed by its emphasis on SMEs and digitalization as well as leveraging the AfCFTA.

“Government interventions in 2020 also exacerbated pre-existing fiscal rigidities and public debt vulnerabilities. The government deficit, including energy and financial sector costs, reached 15.5 percent of GDP, while annual gross financing needs exceeded 20 percent of GDP. Public debt rose to 78 percent of GDP in 2020, from 64.4 percent in 2019, including ESLA of GHs7.63 billion in 2020.

“The 2021 budget’s recent policy pivot towards fiscal consolidation is an important step in the right direction and a difficult one in a pandemic. Fiscal consolidation should be deepened and anchored around debt and debt service reduction to create space for social, health, and development spending.

“Given the social and equity implications, fiscal consolidation should rely more on progressive revenue and spending measures, while guaranteeing fiscal support to the most vulnerable and social safety nets.

“Despite progress in rationalizing power generation, the financial viability of the energy sector affects people’s daily life and will remain a drag on productivity and a driver of public debt if not addressed decisively. Improving efficiency and collections remains a priority to achieve substantial savings.

“The planned audits of COVID-19 emergency spending and of arrears accumulated in 2020—in addition to routine budgetary reporting practices—are welcome as they will help account for the increase of spending and its effectiveness, and provide lessons to improve the robustness of Public Financial Management systems.

“The team had collaborative and constructive discussions with Vice President Bawumia, Finance Minister Ofori-Atta, Governor Addison of the Bank of Ghana, other senior government officials, Finance Committee of Parliament, private sector representatives, and civil society organizations.”