13 February 2017

Ghana: NDC Incurs $5bn Debt - in Just One Year to Swell Up National Debt to $30.1 Billion

A monetary summary report released by the Bank of Ghana (BoG), covering the period of January 2016 to November 2016, indicates that the immediate past National Democratic Congress (NDC) government added almost a whopping $5 billion to the national debt stock within a year.

According to BoG, "available data indicates that the total public debt stood at US$30.1 billion (71.9% of GDP) at the end of November 2016, compared with US$25.6 billion (69.5% of GDP) at the end of December 2015."

But notwithstanding the quantum jump of our debt profile, BoG argues that it is positive in some ways, because the domestic debt accounts for more than 55% of the overall debt. "Of the total, Domestic Debt accounted for over 55 per cent, compared with some 40 per cent share in 2015. The rising share of domestic debt in total public debt is a positive development for long term debt sustainability for two main reasons: First, it would help minimise the potential impact of unanticipated redemptions, and secondly, lower the sensitivity of the public debt profile to exchange rate volatility. It is, however, important to manage this process in a manner that does not crowd out the private sector from the loanable funds market," the bank noted.

Within the period under review, provisional fiscal data also shows that total Revenue and Grants amounted to GH¢30.1 billion (18.0% of GDP), compared with a target of GH¢34.0 billion (20.4% of GDP), while total expenditures and arrears clearance stood at GH¢41.7 billion (25% of GDP), relative to the target of GH¢42.4 billion (25.4% of GDP).

"These resulted in an overall budget deficit, which was estimated at 7.0 per cent of GDP as of November 2016, higher than the target of 4.7 per cent of GDP. The deficit was financed mostly from domestic sources that included a drawdown on government deposits with the Bank of Ghana. The fiscal slippage was mainly attributed to shortfalls in revenues, arising from low international oil prices, weak tax revenue mobilization, and lower than expected donor support. The fiscal outturn for 2016 presents upside risks to the inflation outlook," BoG pointed out in the document.

Relative stability in the exchange rate is foreseen

Touching on the foreign exchange market, the BoG indicated that it "witnessed some volatility in the run-up to the December polls, as demand pressures mounted, but the pace of depreciation has since slowed. In the outlook, the tight monetary policy stance, renewed confidence in the economy and improved balance of payments outturn are expected to support stability in the foreign exchange market."

The report further revealed that in 2016, the Ghana cedi recorded a cumulative depreciation of 9.6 per cent against the US dollar, compared with 15.7 per cent in 2015, adding, "the Ghana cedi remained relatively stable against the major currencies in December 2016, on the back of tighter monetary policy, improved sentiments, and increased foreign exchange inflows."

"The first six transaction days in 2017 showed a depreciation of the cedi by 0.81 per cent against the U.S dollar, compared to 0.51 per cent depreciation in 2016. However, the cedi's volatility is slightly lower in 2017, compared to 2016. The nominal effective exchange rate remained broadly stable, while the real effective exchange rate reflected some appreciation."

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