Ghana overborrows: Faces de facto closure to capital markets – Bank of Ghana
Ghana can’t have easy access to the international financial market for loans because the country has overborrowed to the extent that the market has been shut to the country.
“Ghana’s sovereign bond spreads have widened significantly and led to a de facto closure to the International Capital Markets with implications for financing of the budget,” the Bank of Ghana said in a press release copied to Ghana Business News January 31, 2022.
The Bank further indicated that although budget implementation for 2021 remained fairly in line with expectations, fiscal and debt sustainability concerns regarding the budget for 2022 and implications for sustained fiscal consolidation efforts have triggered an unfavourable credit rating decision by Fitch Ratings which has spilled over to the external sector and may further exacerbate the already elevated inflationary expectations.
It notes however, that, fiscal policy has responded to these concerns with an announcement of a further 20 percent cut in expenditures in 2022.
“This fiscal policy measure will help to provide for some correction, avoid the opening up of macroeconomic imbalances, and further deepen the fiscal consolidation agenda. This should also shift the consolidation process away from a revenue-led one, to one which encapsulates both revenue and expenditure measures signalling stronger commitment to keeping the deficit under check,” the Bank added.
Commenting on this development, Economist and Political Risk Analyst, Dr Theo Acheampong said: “Firstly, Ghana has the option of assessing the international financial market, however, they would have to possibly borrow at higher than 10 per cent, especially given the recent spikes in the country’s sovereign bond spreads.
Such high borrowing costs essentially close access to the international capital markets in the six-month outlook to Ghana. The second option is to have the Bank of Ghana finance the budget, but that also comes with challenges. If that happens, the Bank can’t go beyond a certain threshold as it would need to keep in strict conformity of the net domestic financing ceiling, and without significantly also affecting inflationary trends that are already beyond the Bank’s own 8.0 ± 2 inflation target range.
Ghana’s December inflation reached 12.6 per cent, according to figures published by the country’s statistical service,” he explained.
The third option available to the country, he said “would be to sell more domestic debt via Treasury Bills and other instruments, and we are already seeing that,” adding that, “whichever way the government goes, there are economic and political implications,” he said.
Ghana’s public debt has increased to GH¢344.5 billion, which is 78.4 per cent of GDP at the end of November 2021, compared with GH¢291.6 billion, or 76.0 percent of GDP at the end of December 2020.
According to the Bank, of the total debt stock, domestic debt was GH¢179.4 billion (40.8 percent of GDP), while the external debt was GH¢165.1 billion (37.6 percent of GDP).
By Emmanuel K. Dogbevi
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