The nation’s outstanding debt obligations – over US$42 billion at current rates over the next decade – could result in further debt exchanges if substantial reforms are not adopted, Dr. Richmond Akwasi Atuahene, a corporate governance and banking consultant has said.
In a recent paper titled ‘Ghana’s Public Debt Crisis and Debt Overhang: No Easy Way Out’, the analyst underscored the situation’s severity if pertinent steps are not taken.
He warned that without comprehensive reforms, the country could face another round of debt exchanges.
“With hindsight, it is clear that the first debt restructuring led to a stronger reduction of debt in net present value terms. However, the interest and principal payments still pose a high burden on the country, and Ghana may require a second debt exchange in 2027 or 2028,” he stated.
Last month, the finance ministry announced that it had achieved a significant milestone in its debt restructuring efforts, completing a Eurobond exchange programme.
The country exchanged approximately US$13 billion in Eurobonds for new bonds, resulting in a debt reduction of 37 percent (around US$5 billion); debt service relief of US$4.3 billion between 2023 and 2026; and an interest rate reduction from over 8 percent to less than 5 percent in what has been described as a critical step for economic recovery.
This Eurobond debt exchange programme was built on the Domestic Debt Exchange Programme (DDEP) completed in 2023, which involved restructuring GH¢203 billion of domestic debt. The government also reached an agreement with the Official Creditors Committee (OCC) on the restructuring of US$5.1 billion in bilateral official debt.
“Government must ensure fiscal discipline and efficiency in spending to reduce future debt obligations and consequential risks of default. The lack of fiscal discipline will only render the touted success of debt restructuring illusive,” he stated in his analysis.
The DDEP, completed in two phases by September 2023, reduced interest rates and extended maturities. However, these measures have not entirely alleviated the prevailing fiscal pressures.
“Without robust fiscal reforms and strict control over government expenditure, the debt restructuring may simply postpone debt obligations rather than achieve its long-term debt sustainability goal,” Dr. Atuahene cautioned.
Persistent fiscal and structural challenges
Historically, Ghana’s fiscal space has been characterised by inefficiencies in tax collection and public financial management. The country’s tax-to-GDP ratio continues to hover around 12.5 percent, significantly below the sub-Saharan African average of 16 percent.
Dr. Atuahene attributes part of this shortfall to systemic inefficiencies, stating: “Non-compliance with tax payments is an urgent issue in Ghana, as the government has been suffering from a widening fiscal deficit, a rising debt burden, and debt overhang.”
He stressed the need for structural reforms to strengthen tax administration and broaden the tax base, stating: “Ghana must fully capitalise on diversifying its tax revenue streams through the introduction of environmental levies, property taxes, and taxes on digital services.”
Comparisons with peers like Rwanda and Kenya highlight the lag in leveraging these revenue streams.
Additionally, flagship government programmes, which many deemed populist, have contributed to the fiscal strain.
“Flagship programmes like Free Senior High School, Agenda 111, and One District, One Factory enjoyed budgetary allocations worth GH¢33 billion over three years, adding to the country’s domestic debt crisis,” Dr. Atuahene observed.
While these programmes have had socio-economic benefits, their poor targeting and lack of proper budgetary planning have compounded fiscal challenges.
Implications for economic stability
The debt overhang has had far-reaching consequences on the financial sector and private investment. Banks, heavily exposed to government bonds, experienced significant losses due to the domestic debt exchange programme.
This has created liquidity constraints, tightened credit conditions, and discouraged private-sector investment.
“The restructuring of government bonds has led to significant capital losses for banks, forcing them to tighten credit to shore up their balance sheets. This reduction in lending capacity has precipitated a ‘credit crunch’, severely restricting the availability of loans for businesses and consumers,” Dr. Atuahene explained.
This credit crunch, he noted, threatens economic recovery – with the private sector’s access to loans severely limited.
Urgent reforms
The government faces increasing refinancing risks, particularly with bilateral and commercial debt repayments intensifying from 2026 onward.
Dr. Atuahene highlighted the importance of strengthening fiscal frameworks and enhancing public financial management to mitigate these risks.
“Fast-track actions are needed to integrate all spending accounts into the Treasury Single Account and improve cash forecasts to aid effective cash management and prevent the accumulation of arrears,” he recommended.
He also stressed the need to adopt a legally binding fiscal rule supported by an independent Fiscal Council to ensure fiscal discipline.
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