Public debt further rises to GHc 200bn

Ken Ofori-Atta, Finance Minister, with Dr. Muhamudu Bawumia, Vice President

Data released by the Bank of Ghana yesterday reveals that the country’s public debt has risen to GHc 200.0 billion, equivalent to US$ 38.8 billion as at the end May this year.

The increase from GHc 173.2 billion as at December 2018, has largely been due to the effect of the cedi depreciation; during the first three months of the year the local currency fell sharply before recovering partly. Since the beginning of the year the cedi has depreciated against the US dollar by 8.24 percent.

The debt situation is not particularly worrying to government’s economic chieftains who point out that it merely translates to 58.1 percent of Gross Domestic Product (GDP). In 2016, the debt to GDP ratio reached a peak of a little over 70 percent, although the subsequent rebasing of the economy, which increased its size (at least statistically) by about 26 percent has since lowered it significantly.

However, the ratio has been on an increasing trend this year, propelled particularly by the record US$3 billion Eurobond issue done in March, easily Ghana’s largest to date, of which about half is new debt rather than being used to refinance old debt.

The special resolution bonds issued to protect bank depositors – by bridging the capital deficits of several indigenous banks consumed by the recent consolidation process masterminded by the BoG – has also contributed substantially to the recent sharp rise in the public debt level.

The external component of the public debt as at May makes up to GHc 105.4 billion, equivalent to US$ 20.5 billion, representing 30.6 percent of GDP.

The domestic debt component amounts to GHc 94.6 billion, representing 27.5 percent of GDP.

The financial sector resolution bond issuances make up GHc 11.0 billion of the public debt, representing 3.2 percent of GDP.

Monetary Policy Committee

The Bank of Ghana’s Monetary Policy Committee will today announce its benchmark Monetary Policy Rate for the next two months.

Some market analysts are of the view that, this recent downward trend in inflation could boost the confidence of the central bank’s Monetary Policy Committee (MPC) to ease monetary policy although there is a contrary view that the most recent cut of 100 basis points in January contributed to ensuing steep cedi depreciation and so the BoG should tread with extreme caution..

Ghana’s benchmark policy rate is currently at 16.0 percent and proponents of a cut in the MPR argue that it is needed to make credit cheaper, which could increase private sector demand for credit to expand production and enhance overall economic activity.