After months of speculations, the country is now officially classified as Highly Indebted Poor Country (HIPC).
For the records, the International Monetary Fund (IMF) classified Ghana as HIPC way back in February 2020 on its website. Ghana was listed alongside 37 other countries including Afghanistan, Nicaragua, Haiti and Chad as countries eligible for a HIPC programme.
This is the second time that Ghana has found itself in this position. The first was in 2001 under former president John Agyekum Kufuor.
Debt levels
New Bank of Ghana data shows that the country’s debt now stands at over 78.3 percent of the total value of the economy.
According to World Bank parameters, if a country’s debt-to-GDP ratio crosses the 70% debt mark, the country is classified as HIPC. HIPC status means it would be difficult for that country to settle its debts on time.
As at the end of June 2022, Ghana’s public debt has increased to GH¢393.4 billion, and that is 78.3 per cent of GDP.
The breakdown is as follows: Domestic debt was GH¢190.1 billion (37.8 per cent of GDP), while the external debt stood at GH¢203.4 billion (40.5 per cent of GDP).
If the current public debt is shared among the citizenry, it could mean that every Ghanaian now owes about 13, 600 Ghana cedis.
HIPC Initiative
The HIPC initiative was initiated by the International Monetary Fund and the World Bank in 1996, following extensive lobbying by NGO’s and other bodies. It provides debt relief and low-interest loans to cancel or reduce external debt repayments to sustainable levels, meaning they can repay debts in a timely fashion in the future. It provided debt relief to cash-strapped countries based on the implementation of poverty alleviation strategies prescribed by the IMF and the World Bank.
To be considered for the HPIC initiative, countries must face an unsustainable debt burden which cannot be managed with traditional means.
Grim economic reports by the IMF indicates that Ghana’s current debt levels is even higher than the period before the country was declared HIPC around 2001. And the current depreciation of the Ghana Cedi has even made the situation worse.
The joint IMF-World Bank comprehensive approach to debt reduction is designed to ensure that no poor country faces a debt burden it cannot manage. To date, debt reduction packages under the HIPC Initiative have been approved for 37 countries, 31 of them in Africa, providing $76 billion in debt-service relief over time.
Economist Dr. Eric Osei Assibey says the situation calls for some aggressive measures to check the country’s rising debts.
International rating agencies have already classified Ghana as high-risk, junk and debt distress country.
A senior research fellow at the Institute for Statistical, Social and Economic Research (ISSER), Dr. Robert Osei, also warned the economy may be retrogressing into a Highly Indebted Poor Country (HIPC) status.
Vice-President, Dr. Mahamudu Bawumia, then a vice presidential candidate, in March 2015 described Ghana (even with much better economic prospects) as a Highly Indebted Middle-Income Country (HIMIC).
“In fact, Ghana is right back to the debt unsustainability that led to HIPC. However, HIPC debt relief will not be available again”, Dr. Bawumia said at a lecture on the state of the economy.
But Deputy Finance Minister, John Kumah, has ruled out the possibility of Ghana going back to HIPC status. According to him, government is showing more discipline in managing its debts and promised that very soon the rewards of such discipline would become apparent.
“We are not going to HIPC. We are going into a three-year IMF programme. We have been there [HIPIC] once and we are not going back there,” he told Joy Business in a recent interview.
Inflation
At its recent Monetary Policy Committee (MPC) press briefing the Central Bank outlined the following as impacting the debt stock.
It said the two inflation readings since its May MPC meeting pointed to continued broad-based upward pressure on prices, reflecting the pass-through effects of increases in ex-pump petroleum prices, transport costs, currency depreciation, and food prices.
It noted that headline inflation increased markedly from 23.6 per cent in April 2022 to 27.6 percent in May, and then further up to 29.8 per cent in June. Food inflation went up from 26.6 per cent in April to 30.1 per cent in May, and then to 30.7 percent in June 2022. On the other hand, non-food inflation moved from 21.3 per cent to 25.7 per cent, and then to 29.1 per cent in June 2022.
The Bank noted further that similar to the observed trends in headline inflation, underlying inflation pressures have also risen sharply.
The Bank’s core inflation measure, defined to exclude energy and utility, rose from 22.3 per cent in April 2022 to 26.4 per cent in May, and then to 28.4 per cent in June, it said, adding that, weighted inflation expectations from businesses, banks, and consumers remained elevated in June 2022.
On provisional data on budget execution for January to May 2022, the Bank said it indicated an overall broad fiscal deficit on a cash basis of 5.0 per cent of GDP, against a programmed target of 3.5 per cent of GDP.
The corresponding primary balance for the period was a deficit of 1.4 per cent of GDP, against a deficit target of 0.2 per cent of GDP. Over the period, total revenue and grants amounted to GH¢29.5 billion (5.9 per cent of GDP), below the projected GH¢34.8 billion (6.9 per cent of GDP), and total expenditure was GH¢48.9 billion (9.7 per cent of GDP), below the programmed target of GH¢51.8 billion (10.3 per cent of GDP).
