Generally, public debt arises when government spending is more than its revenue, so it, therefore, borrows — either domestically or externally or both — to close the gap.

Government budgets capture spending plans against expected revenue on yearly basis and at all times account for legacy debts of past governments too.

As a result, a previous government’s legacy debts must always be carried on by a new government as arrears. This is well captured by the adage, “Government is a continuum.”

It is this practice that bequeathed to President Akufo-Addo substantial arrears owed to contractors and other government service providers in excess of GH¢11 billion, of which the Auditor-General validated only GH¢6 billion.The government also inherited energy sector take-or-pay contractual commitments of over GH¢6 billion a year, and financial sector toxic assets valued at GH¢21billion.

Simply, with Ghana’s tight fiscal space coupled with budget rigidities, Mr Ken Ofori-Atta, on assumption of office as Finance Minister in 2017, had to creatively look for resources to pay for legacy debts and their associated high interest payments in addition to finding additional funds to execute government’s bold plans of Free SHS, agricultural modernisation, among others.

Public debt stock

It is within this difficult context that the success of Mr Ofori-Atta’s stewardship in containing the public debt, accelerating economic growth, and passing a Fiscal Responsibility Act must be analysed.

The public debt stock at the end of November 2020 stood at GH¢286.9 billion, representing 74.4 per cent  of Ghana’s Gross Domestic Product (GDP), as against GH¢122.6 billion at the end of 2016.

Between 2012 and 2016 the total public debt stock more than tripled from GH¢36bn ($8.6bn) to GH¢122.6bn ($29.3bn), representing a cumulative rise of 24.7 per cent of GDP over the period (from 47.8 per cent to 72.5 per cent).

This meant about GH¢4 billion of domestic debt matured per month at a time when the country’s tax revenue per month averaged just about GH¢2.2 billion.

The situation was bad and so for the first time in sub-Saharan Africa, Ghana needed a World Bank Partial Risk Guarantee (PRG) to issue a Eurobond in 2015.

A report published by the Jubilee Debt Campaign in 2016 revealed that Ghana was in a debt crisis because the country was losing around 30 per cent of government revenue in external debt payments annually.

The external debt payment was expected to stay well above 20 per cent of revenue until at least 2035.

Faced with this situation in 2017, Mr Ofori-Atta announced a debt re-profiling agenda, and Ghana issued its first 15-year domestic bond in April, 2017.

Interest savings arising from the re-profiling of domestic debt were estimated at GH¢612 million for 2017.

This re-profiling ensured that Ghana’s debt stock was innovatively added on to at a lowered rate of debt accumulation.

Over the past four years, the government worked hard to grow the economy from the 3.4 per cent  growth rate in 2016 to 6.8 per cent  before the emergence of COVID-19 in March 2020. The strategy was to move Ghana Beyond Aid and improve on the living standards of all Ghanaians.

An asset quality review carried out by Bank of Ghana (BoG) in 2015 and 2016 revealed severe challenges with solvency, liquidity and asset quality in Ghana’s banking industry, with some banks in serious difficulties to meet demands of customers.

A regulatory crackdown on poor business practices and weak capital positions in the financial sector resulted in a series of market exits at the time.

Though this came at a high price, this necessary act has, however, made Ghana’s financial sector now more robust and sustainable with strong corporate governance structures.

Debt management strategy

Indeed, Mr Ofori-Atta had to borrow GH¢21.6 billion to pay for the banking sector clean-up. In doing so, he protected the savings of 4.6 million depositors and 81,700 investors while creating a financial architecture that is now pro-growth.

In the last four years, the government also paid some GH¢12 billion in excess energy capacity charges inherited in 2017, and has kept the lights on.

It also has settled a substantial part of the GH¢11billion outstanding arrears bequeathed to it.

The government has also invested in excess of GH¢15.7 billion in its key flagship programmes.


These flagship programmes are meant to lead to real economic transformation; strengthen human capital through enhancing access to health care, education and skills development; modernise agriculture and industry; deliver infrastructure across the country — including a revitalised railway sub-sector; and create decent jobs for the teeming unemployed youth and graduates.

The finance ministry’s better management of the country’s debt under Mr Ofori-Atta is evident in the stabilisation of the cedi against major trading currencies over the past four years and the favourable credit ratings from Fitch and Moody’s, as well as increased investor confidence in the economy.

In fact, the relative stability of the cedi alone helped save Ghana’s purse by limiting rates of exchange on interest charges on foreign- denominated loans.

The story can’t be told without appreciating that had it not been the government’s containment of the debt level and risks, then just like some nations, Ghana too would have been on its knees following the outbreak of COVID-19.

From an estimated 0.9 per cent  in 2020, the country’s growth rate has been projected at around four per cent in 2021. This suggests the future looks bright in managing the nation’s public debt and the economy in general.

To address the increasing debt service cost, the Ministry of Finance rolled out a number of solutions to help reverse the trend and reduce its impact on the economy.

The measures include the use of low-cost debts to retire comparatively costly ones, the development of a robust domestic debt market to create space for low-cost debts, and an increased resort to bilateral and multilateral sources for loans without compromising on prudent level of risk.

Concern for debt sustainability is well accounted for in the GH¢100 billion Ghana Coronavirus Alleviation & Revitalisation of Enterprises Support (CARES) programme.

The need to better the lot of citizens through government expenditure in the midst of dwindling revenues means government has to borrow and use the money well for the development of the country.

Though the debt stock has been on the rise, the government, from all indications and available data, is seen to have better managed the country’s debt situation.

The writer is the Managing Partner, White Hall Advisors

By Isaac

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