Ghana: Debt Levels Reach Unsustainable Levels

Ghana Budget Review 2017

Ghana, West Africa’s second largest economy’s 2017 budget proposes 58.1 billion GHC of spending under the banner of Sowing the Seeds for Growth and Jobs. The expenditures amount to 28.6 percent of GDP, a decrease of 1.7 percent of GDP from 2016.

Employee compensations of 16 billion GHC and debt servicing of 13.9 billion GHC represent the two single largest expenditures for 2017.

Sources: Leanwords and Ministry of Finance

Revenues for 2017 are projected to come in at 44.9 billion GHC, roughly 22 percent of GDP. It is also projected that revenues would remain consistent over the next two years at the current share of GDP.

Domestic taxes such as taxes on income and property and VAT make up the largest share of revenues. Meanwhile, import duties are expected to contribute 6.7 billion GHC while export duties make up 331 million GHC.

Sources: Leanwords and Ministry of Finance

Importantly, Ghana is facing mounting pressure to address its budgetary shortfalls and rising public debt levels.

The 2016 deficit was an excessive 10.3 percent of GDP, which has decreased by more than half in 2017 to 4.6 percent. The 2017 Budget addresses specific areas to reduce the budget deficit over the medium term. Some areas identified included excessive debt servicing, expenditure overruns caused by fiscal indiscipline, and revenue underperformance.

Of pressing concern is the growth of public debt by 25 percent since 2012. Over the same period, a rising share of debt has come from external lenders as opposed to domestic creditors. 2016 public debt levels of 72.5 (122 billion GHC) percent of GDP exceed the IMF sustainability threshold of 70 percent. External debt came in at 68.9 billion GHC while domestic debt was 53.4 billion GHC.

Ghana will need to implement policies over the short and medium term to address its public debt problem as interest payments make up 7 percent of GDP in 2017 raising fears of debt service difficulties. This figure has a realistic potential to rise as the stock of debt rises and global interest rates increase. Ghana’s relatively large revenue to debt ratio of 37 will need to decrease through revenue mobilization policies.


Sources: Leanwords and Ministry of Finance


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