Deloitte, a global professional services firm, has recommended to the government of Ghana to allocate increasing portions of additional loans to productive and self-financing capital expenditure.
This strategy aims to expand the economy while generating the necessary inflows to pay down these loans.
According to Deloitte, this approach offers the most feasible path to achieving an optimal public debt to Gross Domestic Products (GDP) ratio of 55% by the end of 2028, especially considering the likelihood of continued debt growth.
Debt service commitments and economic risks
In its “Snapshot of Ghana’s 2024 Mid-Year Budget,” Deloitte highlighted concerns regarding the resumption of debt service commitments at the conclusion of Ghana’s three-year, $3 billion International Monetary Fund (IMF) programme.
These commitments could pose risks to achieving the 55% targeted debt-to-GDP ratio.
GH₵741.95 billion total public debt
As of June 2024, Ghana’s total public debt stood at GH₵741.95 billion, reflecting a 22% increase from GH₵608.4 billion at the end of December 2023.
Despite this rise, the ratio of gross public debt-to-GDP decreased slightly from 72.3% in June 2023 to 70.6% by June 2024.
Impact of debt relief and debt cancellation
The improvement in Ghana’s debt position is attributed to significant debt relief and cancellation measures.
These include $2.8 billion in debt relief from bilateral and multilateral creditors and $4.7 billion in debt cancellation from Eurobond holders.
GH₵289.9bn domestic debt
Domestic debt grew by GH₵32.6 billion representing 12.7% from GH₵257.3 billion to GH₵289.9 billion due to the continuous disbursements from creditors.
GH₵451.9 billion external debt
Additionally, external debt also increased by GH₵101 billion, from GH₵350.9 billion to GH₵451.9 billion an increase of 28.7% as a result of the sharp depreciation of the Ghana cedi.
Reduction in interest payments amid debt restructuring
Ghana’s debt restructuring efforts, combined with the IMF programme, have successfully reduced interest payments from GH₵55.9 billion (previously the largest expenditure item) to GH₵48 billion (now the second-largest expenditure item).
The restructuring of external debt has led to $4.4 billion in debt relief and $4.7 billion in debt cancellation during the course of the IMF program.
Deloitte anticipates that these measures will help slow the pace of debt accumulation and stabilize Ghana’s debt-to-GDP ratio, provided the economy continues to grow.
