Business & FinancePolitics

IMF ‘vindicates’ Isaac Adongo on spiralling debt and its risks to Ghana’s economy

The International Monetary Fund (IMF) has warned that Ghana’s growing debt presented elevated risks to the economy, confirming earlier concerns by financial analyst and Member of Parliament (MP) for Bolgatanga Central Constituency, Mr. Isaac Adongo, that the government needed to reduce the pace of debt accumulation to safeguard the economy from crashing.

In its Article IV review statement issued on July 19, the fund said the risks to the country’s ability to repay had increased, projecting that, the ratio of the debt-to-gross domestic product (GDP) would hit 83.5% at the end of 2021.

Last year, the country used about 87% of total tax revenue to service debt with estimates showing that debt service expenditure would consume more than 91% of tax revenue this year.

The fund stressed that urgent steps were needed to mitigate the growing risk associated with the continuous rollover of maturing debts and restore debt sustainability in the short to medium term.

The position of the IMF mirrored earlier concerns by the Deputy Ranking Member of Parliament’s Finance Committee as expressed in a public lecture on the economy in June 2021 that, debt growth had assumed a sustained upward trajectory when President Nana Addo Dankwa Akufo-Addo and Vice President Dr. Mahamudu Bawumia took office in 2017.

“An amount of about GH¢180 billion was added to our debt stock within a space of four years, an indication that Akufo-Addo and Bawumia have accounted for more than 60% of Ghana’s debt stock since independence.”

The Chartered Accountant said, beyond the quantum of the debt being an issue, Government had failed to boost the export earning capacity of the economy as buffer to repay the foreign currency-denominated loans.

He said a recent IMF and World Bank Debt sustainability analysis of Ghana showed that Ghana had breached the threshold of this measure for debt sustainability, signifying heightened external vulnerability.

He also noted that the country lacked adequate reserves at the Bank of Ghana to cover for debt held by non-resident investors.

“As a rule of thumb, a country must have at least $2 for every dollar of short-term capital holding of non-resident investors. However, over the last couple of years, declining net international reserves of Ghana has resulted in breaches of this prudential foreign currency reserve requirement.

“By the end of 2019, Ghana’s net international reserves could hardly cover for 50 cents of every $3 short-term capital holding of non-resident investors.”

“You will recall that in 2019, significant reversals of portfolios of domestic bonds held by non-residents in Ghana and mounting uncovered auctions led to excessive depreciation of the cedi as our buffers were inadequate to stem the huge liquidity demands in the forex market,” he said.

In the CFR public lecture, the renowned legislature added that the rising levels of fiscal deficits, low revenue generation and high levels of debt service resulted in rising primary balance deficits, which meant that the country has been borrowing to pay interest costs.

Mr. Adongo also noted that the ability of the economy to sustain the pace of the debt accumulation was also worrying.

On the solutions, Mr. Isaac Adongo said the country must be prudent and fast to “avert a looming market access complication on the international capital market as investors begin to protect their monies from potential default.”

“Beginning with the 2021 mid-year budget estimate, government must reign in its expenditure by rationalizing its spending and resist the temptation to request supplementary appropriations for additional expenditure, he said.

The Bolgatanga Central MP also said he was aware that dealing with these recommendations may require very tough decisions that should be immediate and drastic.

“This may be politically difficult to initiate and implement.

To achieve this, I call on the Government to seek help from Ghanaians and begin to engage financial and natural resource governance experts to engender trust.

National dialogue and consensus around the critical national issues and solutions should be held immediately for the critical stakeholder buy-in.

“Ghana is not in normal times and we need to muster the political will to pursue the most difficult efficacious policy shifts to save our country,” the financial analyst added.


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