Terkper predicts Ghana’s debt-to-GDP ratio will hit 83%

Seth Terkper, former finance minister

A former finance minister, Seth Terkper, has predicted that Ghana’s debt to gross domestic product (GDP) ratio will reach 83% by the end of 2021 if the data is released.

He noted that currently the Bank of Ghana financial and economic data reports put the debt situation at 78.4% less bailouts.

He said the cost of bailing out the government of Ghana in 2021 is 2.7% in the 2022 budget.

If added to debt, the ratio will increase to 84.5%,” he explained.

“Will our debt-to-GDP ratio reach 83% or more by the end of 2021, despite recent official protests? The BoGs financial and economic data report puts the level at 78.4% (as of end-November 2021), but excluding the bailout (see note). The lowest monthly debt amount is 3.4%, which if added for December 21 brings it to 81.8%.

“The cost of the 2021 GOG bailout is 2.7% in the 2022 budget. If added (as before 2017), this footnote to Schedule 2A of the 2022 budget increases the debt ratio” all-inclusive” at 84.5%. Even a modest 1.0% increase to account for an unexplained financial sector resolution obligation still puts debt at 82.8 or 83%,” he tweeted.

His comments come at a time when Bloomberg reported that Ghana’s dollar bonds fell 10% in 10 days, moving deeper into troubled territory as investors judge the refinancing of debt in the bond market. Eurobonds will not be an option when the Federal Reserve rises. fiscal rates and targets remain elusive.

The surcharge demanded on Ghana’s dollar-denominated sovereign debt jumped on Wednesday to an average of 1,105 basis points, from 683 basis points in September. Its $27 billion external debt got off to the worst start to the year among emerging markets, extending last year’s 14% loss, according to a Bloomberg index.

Investors are wondering if Ghana – the region’s second-largest economy – can sustain its debt levels if a spike in borrowing costs drives it out of international markets. Public debt soared 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.

This places Ghana among the credits most vulnerable to US monetary policy tightening, despite strong economic growth.

“The market has realized that this is a country with a lot of outstanding bonds,” said Kevin Daly, chief investment officer at Aberdeen Standard Investments in London. “A lot of people came in last year with overweight positions and a lot of them started to throw in the towel.”

The West African nation’s $750 million bond due March 2027 fell 10 cents this month to 79.4 cents to the dollar on Thursday, taking the yield to nearly 14%. Of 14 Ghanaian dollar bonds, 13 are trading at an additional premium of at least 1,000 basis points, a level considered distressed, according to a Bloomberg sovereign debt index.

“I don’t expect them to default in 2022 as they have enough foreign exchange reserves, but in the medium to long term it becomes a problem as Ghana has lost access to the euro market. -bonds to refinance its debt,” said Joe Delvaux. , portfolio manager at Amundi in London. “They are too indebted for the size of the economy and investors have lost faith in the government’s willingness to shore up spending and take the necessary action.”h

The government’s failure to pass a new tax on electronic money transfers through parliament in November also made investors doubt whether it had the political capital to pass revenue-raising measures in parliament or reign in spending to reduce borrowing needs.

Opposition to tax reform and plans to end a subsidy on imports of pharmaceuticals and vehicles will make it difficult for the government to meet the budget deficit target of 7.4% this year, from 12 .1% last year.

“There is no appetite for a new issue from Ghana at this stage and probably won’t be until the government consolidates its public finances more significantly,” said Carlos de Sousa, who helps oversee a $3.8 billion developing country bond fund at Vontobel Asset Management in Zürich.

But in a response, the Ministry of Finance said the article on Ghana’s debt to gross domestic product (GDP) figures gave the wrong historical debt.

“There are serious factual errors in the article, which may worry investors, if not corrected. For example, Bloomberg reported 81.5% at the end of the year of the debt-to-GDP ratio.

“This is an error. Our provisional nominal debt to GDP ratio, at the end of November 2021, was 78.4%, which is in line with the latest data available. Revenue collected in December is seasonally the largest of all years , our financing needs in December are unlikely to see us exceed 80% debt to GDP by December 2021.”

Sallie R. Loera