The rippling effect of Ghana’s debt restructuring will not only be felt by financial institutions but businesses and households.
This is the “reality” that Ghana finds itself, the Policy Initiative for Economic Development (PIED), an economic policy Think Tank, said as the country looks to restructure its debt with the help of the International Monetary Fund (IMF).
Ghana is in negotiation with IMF for a $3 billion loan support for its homegrown economic programme, with a Debt Sustainability Analysis (DSI) currently ongoing.
The loan facility is aimed at easing the country’s economic hardship by restoring and sustaining macroeconomic stability, ensuring a resilient and inclusive growth and promoting social protection.
The Government is also setting up a five-Member Committee of prominent financial services professionals to lead extensive stakeholder engagements across all the key segments of the financial sector in the debt restructuring process.
Dr Daniel Abateye Anim-Prempeh, an Economic and Financial Analyst with PIED, told the Ghana News Agency in an interview on Tuesday that financial institutions would be denied the needed access to liquidity through the debt restructuring.
He noted that in effect, banks, pension funds and insurance companies who the Government borrowed from would find it difficult to mobilise enough money for onward lending, thereby denying businesses the opportunity to borrow for expansion.
“If businesses are not expanding, it means that they would not be able to increase output. When output is not increased, jobs will not be created, and they cannot make profit and that will also affect the Government’s ability to mobilise revenue through taxation.” Dr Anim-Prempeh explained.
Mindful of the reduction in the level of public and investor confidence in the economy and, by extension, the financial sector, he urged the Government to ensure that “the debt restructuring is well done and communicated.”
The Financial Analyst said many Ghanaians would resort to the traditional ways of keeping money in their homes should the debt restructuring reduce public confidence, particularly in the financial sector.
“People have invested in treasury bills or bonds with the expectation that when it matures, they can get the money with returns, but now it must now be extended. This means that people’s plan and strategy for the use of that money have been frustrated.”
He also said: “With this, people who have money will resort to other instruments or alternatively. People who have so much money may resort to other markets other than our domestic market.”
Dr Anim-Prempeh, therefore, recommended to the Government to “devise a very good communication mechanism and a holistic stakeholder engagement to ensure that the debt restructuring is done and still maintain investor confidence in the domestic economy.”
He asked the Government to fast-track the negotiations with the IMF and be transparent to everyone, noting that, “once the IMF and the facility comes on board, we’ll earn that credibility from external investors.”
He told the Government to engage captains of industry, including investors and the Association of Ghana Industries (AGI) to incorporate the Planting for Food and Jobs (PFJ) programme to increase value addition and export to anchor economic growth.
The Financial Analyst cautioned the Government against “diverting the money into consumption like paying of wages and salaries, and also conduct periodic audit into the use of the funds to ensure accountability.”
Data provided by the Bank of Ghana shows that the country’s total public debt stock has reached GHS393.4 billion in June 2022, 78.3 per cent of Gross Domestic Product (GDP).
The Central Bank’s Summary of Economic and Financial Data noted that the domestic debt was GHS190.1 billion, and external debt, GHS203.4 billion, and ascribed the increase in debt to exchange rate instability.
The IMF in its April 2022 Fiscal Monitor predicted that Ghana’s debt to GDP ratio would be 84.6 per cent by the end of 2022 – a debt situation that many economic and financial analysts, and financial institutions have described as “unsustainable.”