[ 2016-03-31 ]

Ghana is broke -IMF •Unable to meet financing costs
The International Monetary Fund (IMF) has
expressed renewed concerns over Ghana’s
deteriorating debt situation.

According to the Fund, “Ghana is at high risk of
debt distress and faces exceptionally high gross
financing needs.”



In an exclusive email conversation with Business
Finder, the fund recommended a change in the
country’s borrowing strategy, to consider
changing market conditions when assessing
alternative debt instruments.



An IMF spokesperson pointed out that to support
government’s aim at a primary surplus for 2016
which is set to bring the debt to a downward
trajectory, the fiscal deficit will also need to
be financed at the lowest cost, taking due
account of the risks.



The Fund reminded government that “recently,
yields on Ghana’s Eurobonds have increased to
above double digits, making this borrowing option
very expensive.” This warning is timely as
government prepares to go on another roadshow in
April this year to convince investors to subscribe
to its fifth Eurobond.



Ghana earned an astronomical 10.75 per cent yield
on the fourth Eurobond issued last year for
$1billion, a move that was criticised by analysts
as too expensive.

Many are of the view, regrettably that with the
country at high risk of debt distress coupled with
the negative outlook prescribed by ratings agency,
Fitch, investors will be unlikely to take anything
less than the earlier 10.75 per cent.

The Bretton Woods Institution itself having
praised government for sticking to the
front-loaded fiscal consolidation albeit
ambitious, insists that “reducing the debt
burden and gross financing needs is a
priority.”



Ghana’s total public debt stock, which as at
December 2015 stood at GH$97bilion representing 72
per cent of the country’s Gross Domestic Product
(GDP) has become a subject of concern for
economists and analysts who are increasingly
doubting Ghana’s



The debt-to- GDP ratio has been found to be the
highest amongst the country’s peers.



The IMF warned that continued strong
implementation of Ghana’s fiscal consolidation
efforts in the 2016 budget will be critical to
reduce financing pressures and gradually reduce
the debt level.



According to Dr Raziel Obeng-Okon of GIMPA,
analyses of Ghana’s revenue base as a percentage
of its GDP and the interest payment as a
percentage of revenue show that the current level
of 72. 9 per cent public debt-to-GDP ratio is
unduly high and should be a concern for all.



“Given our relatively low levels of revenues
vis-à-vis high and rising expenditure, the high
debt-to-GDP ratio may make it more difficult for
Ghana in the medium term to pay its debts and this
may lead creditors to seek higher interest rates
when lending,” he pointed out.



Dr Obeng-Okon who lectures in Public Accounting
warned the high ratio could also cause a panic in
the domestic and international markets and credit
rating agencies may reduce Ghana’s ranking
further.



Barely a week after the interview with the GIMPA
lecturer, Credit ratings agency, Fitch Ratings has
warned that Ghana's fiscal and external deficits
leave the country vulnerable to domestic and
external shocks. The ratings agency affirmed
Ghana's long-term foreign and local currency
Issuer Default Ratings (IDR) at 'B' with a
negative outlook.

Source - The Finder

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