Response to Bloomberg article on Ghana’s debt
Accra, January 14, 2022 – On Thursday, January 13, 2022, the department’s attention was drawn to a widely circulated Bloomberg article with the caption – “Ghana’s debt sinks into distress as investors lose patience“.
The article contains serious factual errors which, if left uncorrected, may cause investors concern. For example, Bloomberg reported 81.5% as the year-end debt-to-GDP ratio. This is an error. Our provisional nominal debt to GDP ratio, at the end of November 2021, was 78.4%, which corresponds to the latest data available. December receipts are seasonally the largest of all years, our financing needs in December are unlikely to see us exceed 80% debt to GDP by December 2021.
The Bloomberg article attributed incorrect historic debt to the GDP figures. It is essential that we correct the fact that Ghana’s debt to GDP ten years ago was 39.67% and 47.80% for 2011 and 2012, respectively, and not 31.4% as reported in the Bloomberg publication. Again, it is important to note that for the period preceding the global COVID-19 pandemic, Ghana experienced an average debt-to-GDP ratio of 56.4% from 2015 to 2019. In 2020, Ghana’s GDP has increased by 0.4% due to the impact of the Covid-19 pandemic on the economy. Funding for additional Covid-19 related expenses, in addition to revised revenue targets, due to the impact of the pandemic, resulted in an increase in the debt-to-GDP ratio from 62.4% in 2019 to 76.1% in 2020.
The current debt-to-GDP ratio of 78.4% at the end of November 2021 rather indicates a reduction in the rate of debt accumulation (i.e. it has halved to 18% in November 2021, compared to 34% in 2020). This attests to an improvement in our debt and liability management, contrary to what the article seeks to imply. Furthermore, with the positive primary balance target for 2022 – one of the key fiscal anchors in 2022 – Ghana is expected to experience improved stability and a reduced debt-to-GDP ratio in 2022 and the medium term. .
It is very unfortunate to see that foreign investors and market players are on edge following the stalemate in Parliament regarding the passage of the electronic direct debit bill. The market now seems to be integrating into our obligations the perceived risks of having a narrow majority in Parliament and the consequences that flow from it. Markets also appear to be concerned that this will affect the government’s ability to adopt and successfully implement some of its key revenue policy measures, as presented in the 2022 budget. healthy parliament in a vibrant Parliament is an essential part of Ghana’s growing democratic credentials and should in no way be viewed as a fiscal risk. The Government is confident that when Parliament resumes this month, the E-Levy Bill, which has already been discussed and approved by Parliament’s Finance Committee, will pass.
The ministry is also keen to state that the government is on track to meet its non-oil tax revenue target for 2021 of GHS 57.05 billion (13.16% of GDP). The non-oil tax revenue target of GHS 80.3 billion for 2022 brings us to a tax revenue to GDP ratio of around 16%, which is still below our average revenue target of 18-20% of GDP . We are confident, however, that we can meet the 2022 revenue target and that the E-Levy will help us get there. The department will continue to monitor and adjust spending accordingly, as it has done successfully in the past, using the commitment control tools (including the quarterly allocation mechanism) available to it.
Ghana does not face impending external imbalances or insufficient reserves. Reserves, at more than 5 times import coverage, are well above our internal 4-month target and better than the average of the previous two decades. Foreign financing of the 2022 budget of $1.5 billion is also bolstered by the SDR balance of around $700 million.
The balance can be funded through the use of alternative instruments, including term loans, bilateral and multilateral loan facilities and a drawdown of our domestic dollar bonds, among others. In December 2021, the Ministry of Finance issued a 5-year 6% national dollar bond. These bonds are currently trading at a yield of approximately 5.5% in the local market.
Like all emerging market countries with foreign investor participation in our domestic debt, Ghana is sensitive to tighter US monetary policy. However, Ghana has healthy reserves of over 5 months of import cover amid reduced levels of foreign investor participation in our domestic market. As of November 2021, our data indicates that only 16.55% of our domestic debt is held by non-resident investors, compared to 38.44% and 30.01% in 2017 and 2018, respectively.
While we recognize that the current trading levels of our Eurobonds have widened, we do not believe this is warranted or reflective of the strong underlying fundamentals of the Ghanaian economy and our rapid rebound from the pandemic. of Covid-19, as evidenced by healthy GDP growth of 6.6% for the third quarter alone and an average of 5.2% for the first three quarters of 2021. year to 2021 have been revised to 4.4%, high-frequency indicators suggest continued strong momentum in economic activity in Q4.
Despite the global challenges that exist as a result of the covid-19 pandemic and particularly in emerging markets, with risks such as financial strains and slow progress on immunization as recently cited by the World Bank, the ministry would like to reassure all its investors that Ghana’s fundamentals remain strong as evidenced by: our growth in Q3-2021; the Ghana Revenue Authority exceeds its target in 2021; and our strong reserve position. Ghana will continue to show leadership in this challenging post-Covid era to build a sustainable and entrepreneurial nation while ensuring that growth, job creation and fiscal consolidation are not compromised, in line with the vision of the president of a Ghana beyond aid. TO FINISH