A recent report authored by some seven civil society organizations (CSOs) has indicated that the recent fall in the prices of commodities on the world market and government loans that are not being used prudently to ensure repayment, have now pushed Ghana back into debt crisis.
Titled: “The fall and rise of Ghana’s debt: How a new debt trap has been set,” the report said the debt situation has placed a significant burden on Ghana’s economy.
It added that the country was at risk of falling back into an extended debt trap, with an economic stagnation and possible increases in poverty rates and failure to implement the Sustainable Development Goals (SDGs).
The authors are the Integrated Social Development Centre Ghana, Jubilee Debt Campaign UK, SEND Ghana, VAZOBA Ghana, All-Afrikan Networking Community Link for International Development, Kilombo Ghana and Abibimman Foundation Ghana.
Lenders ripping off Ghana
“Today’s crisis has resulted from a multitude of factors: failure to diversify away from commodities, the government and lenders failing to ensure loans were used productively enough, falling global commodity prices, particularly gold and oil, and the opportunism of speculators lending at high interest rates seeking large profits.
“The people of Ghana should not have to bear all the suffering of a crisis caused by government policy, irresponsible lenders, and global economic shocks, especially when speculators continue to extract large profits from the country.”
Local currency fall repercussions
It said in early 2013, the price of gold fell significantly, as did the price of oil from the start of 2014, adding that since the start of 2013, the value of the cedi against the dollar has fallen by 50 percent.
This has caused the dollar-denominated size of Ghana’s economy to fall from $47.8 billion in 2013 to $36 billion in 2015.
Because external debts are owed in dollars or other foreign currencies, this has increased the relative size of the debt and debt payments.
Also, external debt has grown from $14.7 billion in 2013 to $21.1 billion in 2016 (an increase of 44 percent), but because of the depreciation, external debt has gone up from 30 percent of GDP in 2013 to an expected 56 percent in 2016 (an increase of 87 percent).
“One response to these economic shocks has been for the government to borrow more money, most visibly through $1 billion of bond issues each in 2013, 2014 and 2015, all under English law. This money has mainly been used to make external and domestic debt interest and principal payments, and to fund ongoing government costs, plugging the gap created by dollar revenue being lower than expected. Less visibly, there has also been significant borrowing directly from external financial institutions.
“The interest rates on the new debts are high, rising from 7.9 percent for the 2013 bond issue to 10.75 percent for the October 2015 one. For the October 2015 bond issue, the World Bank once again broke its own rules by guaranteeing $400 million of payments if the Ghanaian government fails to make them,” it said.
World Bank manoevres
The high interest rate and guarantee meant that if government were to pay the interest every year until 2024, then default on all other payments from 2025, including the principal, the bond speculators would still have made $90 million more than if they had lent to the US government, it said.
“In return, the Ghanaian government has to cut government spending and increase taxes, a process which is expected to intensify further after the December 2016 elections. Under current plans, government spending per person (adjusted to account for inflation) will fall by 20 percent between 2012 and 2017.”
It also made reference to IMF estimates and said government’s external debt payments in 2016 would be 29 percent of revenue, well above the 18–22 percent it normally regards as the upper limit of sustainability.
“Payments are expected to stay well above 20 percent of revenue until at least 2035. This is only considered possible due to a combination of very optimistic expectations and requirements for large spending cuts and tax increases, the very things the IMF has been criticising the European Union (EU) for in the case of Greece.”
By Samuel Boadi