A former Minister of Finance Seth Terkper has predicted that Ghana’s debt to Gros Domestic Product (GDP) will hit 83 per cent by end of 2021 if the data is released.
He noted that at the moment the Bank of Ghana Financial and Economic Data reports puts the debt situation at 78.4 per cent minus bailouts.
He stated that the Government of Ghana 2021 bailout cost is 2.7% in 2022 Budget.
If added to the debt, the ratio will rise to 84.5 per cent,” he explained.
“Our Debt/GDP ratio to hit 83% or more @ end-2021, despite recent official protests? BoGs Financial & Economic Data report puts the level @ 78.4% (at end-Nov 2021) but excluding Bailout (see Note). The lowest monthly debt amount is 3.4% which, if added for Dec-21, takes it to 81.8%.
“GOG 2021 bailout cost is 2.7% in 2022 Budget. If added (as in pre-2017) this 2022 Budget Appendix 2A Footnote raises the “all-included” Debt ratio to 84.5%. Even a modest 1.0% increase to take a/c of unexplained Financial Sector Resolution Bond still puts debt at 82.8 or 83%,” he tweeted.
His comments come at a time the Bloomberg has reported that Ghana’s dollar bonds have slumped 10% in 10 days, moving deeper into distressed territory as investors judge that re-financing debt in the Eurobond market won’t be an option when the Federal Reserve hikes rates and budget targets remain elusive.
The extra premium demanded on Ghana’s sovereign dollar debt jumped on Wednesday to an average 1,105 basis points, from 683 basis points in September. Its $27 billion of foreign debt had the worst start to the year among emerging markets, extending last year’s 14% loss, according to a Bloomberg index.
Investors are questioning whether Ghana — the region’s second-biggest economy — can sustain its debt levels if a surge in borrowing costs shuts it out of international markets. Government debt climbed to 81.5% of gross domestic product at the end of last year, from 31.4% a decade ago, according to data compiled by Bloomberg.
That places Ghana among the most vulnerable credits to tighter U.S. monetary policy, despite strong economic growth.
“The market has woken up to the fact that this is a country with a lot of outstanding bonds,” said Kevin Daly, investment director at Aberdeen Standard Investments in London. “A lot of people went into last year with overweight positions and a lot of them have started to throw in the towel.”
The West African nation’s $750 million bonds due in March 2027 fell 10 cents this month to 79.4 cents on the dollar on Thursday, sending the yield to nearly 14%. Of 14 Ghanaian dollar bonds, 13 are trading with an extra premium of at least 1,000 basis points, a level considered distressed, a Bloomberg index tracking sovereign debt showed.
“I don’t expect them to default in 2022, as they have enough foreign-exchange reserves, but medium to longer term, it becomes an issue as Ghana has lost access to the Eurobond market for rolling over debt,” said Joe Delvaux, a portfolio manager at Amundi in London. “They have too much debt for the size of the economy and investors have lost conviction in the government’s willingness to consolidate spending and take necessary measures.”h
The government’s failure to pass a new levy on electronic money transfers through parliament in November also made investors doubt whether it has the political capital to pass revenue-raising measures in parliament or reign in spending to reduce borrowing needs.
The opposition to the tax reform and plans to end a subsidy on pharmaceutical and vehicle imports will make it hard for the government to meet this year’s budget deficit target of 7.4%, down from 12.1% last year.
“There’s no appetite for a new Ghana issuance at this stage and probably won’t be until the government has consolidated is public finances more meaningfully,” said Carlos de Sousa, who helps oversee a $3.8 billion developing-nation bond fund at Vontobel Asset Management in Zurich.
But in a response, the Ministry of Finance said the article on Ghana’s debt to Gross Domestic Product (GDP) figures, gave wrong historical debt.
“There are some serious factual errors in the article, which may give investors some cause for concern, if not corrected. For example, Bloomberg stated 81.5% as end of year debt to GDP ratio.
“This is incorrect. Our provisional nominal debt to GDP, as at the end of November 2021 was 78.4%, which is the latest data available. December revenue collections are seasonally the largest for any year, it is unlikely that our financing requirements in December will result in us exceeding 80% debt to GDP by December 2021. “
Source: 3news
