Debt restructuring to reduce interest cost burden

Finance Minister Ken Ofori-Atta, will today, December 5, 2023 disclose details of the debt restructuring announced in 2023 Budget Statement and Economic Policy.

Alleviating pressures on the budget

The debt restructuring which is expected to deal with high interest payments on the public debt is part of a four legged approach adopted by the government in 2023 budget aimed at alleviating the pressures on the national budget and restoring debt sustainability.

Revenue increase, expenditure cuts, restructuring of SOEs

The other measures are increasing revenue, reducing expenditure and restructuring of State Owned Enterprises (SOEs).

GH¢467.3bn public debt

These measures are expected to reduce the public debt which stood at GH¢467.3 billion (GH¢467,371.31 million) or the equivalent of $48.8 billion ($48,871.34 million) as at the end of September 2022.

Public is 75.9% to GDP

This represents approximately 75.9% of Gross Domestic Products (GDP) and the debt restructuring measures target to bring it down to 55% in the medium term.

Balance of payment support, new financing streams

When successful, the move will also open up financing streams and provide the needed balance of payment support from the International Monetary Fund (IMF).

Principles of debt sustainability and international best practices

Ahead of today’s announcement, information gathered indicates the terms of the principal payments and interest on the public debt has taken into account principles of debt sustainability and international best practices.

Tenor of maturing instruments to be deferred
According to sources, the government will defer the tenor of maturing instruments but will make graduated payments on future dates to be announced by Ofori-Atta.

Bond principals will not be affected but interest to be affected

While principals of domestic bonds will not be affected, it is likely that interest will be affected given the interest cost commitments on government for 2023 and beyond

GH¢52.5bn projected interest payment for 2023

Interest Payment for 2023 is projected at GH¢52.5 billion (GH¢52,550 million) representing 6.6% of GDP which is almost double the GH¢32.1 billion  (GH¢32,101 million) paid in 2022 which represents 5.4 % of GDP reflecting the higher cost of borrowing and the adverse impact of the currency depreciation on external interest.

Reducing the interest paid on the public debt, increasing revenue significantly, drastic rationalisation of expenditure and restructuring of SOEs are expected to help reduce the public debt to sustainable levels by 2028.

Ghana officially started engaging the IMF in September 2022 for a loan support programme, which is aimed at establishing a macro-fiscal path that ensures debt sustainability and macroeconomic stability underpinned by key structural reforms and social protection.

Negative impact of exchange rate depreciation

The sustainability of debt has been continuously affected by the negative impact of exchange rate depreciation, particularly on external debt, as well as the crystallization of significant contingent liabilities in recent years.

Concessional loans

Concessional loans will continue to be the preferred financing option for projects except in cases where non-concessional borrowing may be required to finance critical transformative projects.
126 SOEs worth GH₵110bn

The value of Ghana’s 126 State-Owned Enterprises (SOEs) is GH₵110 billion.
SOEs have consistently posted negative operating margins, averaging around 10%.

SOEs saddled with debts

However, these SOEs are saddled with debts while government continues to inject capital into them to prevent total collapse.

50% of SOEs recorded GH¢5.3bn losses in 2020

About 50% of SOEs recorded GH¢5.3 billion in losses in their operations in the 2020 fiscal year.

Joint Venture Companies

Interestingly, Joint Venture Companies (JVCs) involving SOEs tend to do well and post profits.

Prudent management to generate 10% return

Prudent management to generate 10% return on the assets can generate GH₵11 billion to the national coffers and the enterprises, resulting in the employment of more than 700,000 people in the public and civil service.

GH₵144bn revenue

The budget projected a total revenue and grants of GH₵144 billion, representing 18% of Gross Domestic Product (GDP).

Cost cutting measures

On expenditure rationalisation, Metropolitan, Municipal and District Assemblies (MMDAs), Ministries, Departments and Agencies (MDAs) and State-Owned Enterprises (SOEs) have been directed to reduce fuel allocation to political appointees and their Heads by 50 per cent.

The directive applied to all fuel allocation methods including coupons, electronic cards, chit systems, and fuel depots.

Non-critical projects on hold

All non-critical projects for 2023 financial year are on hold.

Moratorium on purchase of vehicles extended

A moratorium on the purchase of vehicles for government work has also been extended and all sport utility vehicles in the state fleet are to be restricted to cross-country travel while the purchase of vehicles shall be restricted to locally assembled automobiles.

Only essential official foreign travels permitted

Only essential official foreign travel across government including SOEs shall be allowed, and no official foreign travel shall be allowed for board members.

All government institutions are to submit a travel plan for the year 2023 by mid-December to the Chief of Staff.

Meetings and workshops should be held within the official environment or in government facilities while all government sponsored external training and staff development activities at the Office of the President, Ministries and SOEs have been put on hold for the 2023 fiscal year.

A further cut in expenditure is to affect appointees including salary freezes, and the suspension of certain allowances like housing, utilities, and clothing.
Tax waivers for foreign companies frozen

A freeze on new tax waivers for foreign companies and the review of tax exemptions for free-zone, mining, oil and gas companies, and a suspension on hiring civil and public servants are also in the 2023 budget.