IEA concerned about Ghana’s domestic borrowing surge

The Institute of Economic Affairs (IEA) has expressed concern over the Ghanaian government's aggressive borrowing on the domestic debt market, particularly at the short end where investor appetite remains high.

In its July-August 2024 Economic Outlook, the IEA reported that Ghana's domestic debt surged by GH¢32.7 billion, or 12.7%, from GH¢257.3 billion to GH¢290.0 billion in the year leading up to June 2024.

In contrast, the external debt component rose only marginally by US$0.9 billion, or 0.3%, from US$30.1 billion to US$31.0 billion.

The think tank acknowledged that the government's focus on domestic borrowing is understandable, given its lack of access to the international bond market.

However, it cautioned that this borrowing needs to be closely monitored and controlled to prevent a potential debt crisis.

As of the end of June 2024, Ghana’s total public debt stood at GH¢742.0 billion, marking a year-to-date increase of GH¢133.6 billion, or 22.0%.

In dollar terms, the debt was US$50.9 billion, down from US$52.2 billion at the end of December 2023, due to the impact of the cedi's depreciation on the domestic component.

Measured against Gross Domestic Product (GDP), the debt ratio was 70.6% at the end of June 2024, compared to 72.3% at the end of December 2023.

This decline was attributed to a higher nominal GDP in 2024.

Under the IMF's Economic Credit Facility (ECF) programme, Ghana's public debt is projected to reach 82.5% of GDP in 2024, according to the IMF Executive Board’s second review of the ECF on June 28, 2024.

The IEA described this projection as surprisingly high, given that the debt restructuring and fiscal consolidation under the ECF were expected to reduce the debt to a sustainable level of around 56% by 2028.

“It is not clear whether this sustainable target is still attainable,” the IEA concluded.