Citizens and other stakeholders of the Ghanaian economy will today, Monday December 5, 2022 have answers to questions on how the government intends to restructure the country’s debt.
These details have been long awaited for, since its announcement in the 2023 Budget Statement and Economic Policy.
The recent economic crisis threatened the stability of the economy and pushed the government’s budget out of gear.
Investors have had various levels of uncertainties in the future of the Ghanaian economy, as financial rating agencies downgraded the country, a situation which compelled the government to seek economic credibility at the IMF.
The compounding effects have been the debt choked economy and its resultant hardships, at a time world economies are also somersaulting.
Some details of the debt restructuring as announced by the Finance Minister, Ken Ofori-Atta last night includes no haircut on principal bonds and treasury bills are also exempted, as the restructuring is expected to deal with high interest payments on the public debt.
The debt restructuring is part of a four legged approach adopted by the government in 2023 budget aimed at alleviating the pressures on the national budget and restoring debt sustainability.
PRINCIPAL AND INTEREST
Information gathered ahead of the launch of the debt restructuring today indicate that with regards to the terms of the principal payments and interest principles of debt sustainability and international best practices have been considered.
Sources say the government will defer the tenor of maturing instruments but will make graduated payments on future dates to be announced by Ofori-Atta.
While principals of domestic bonds will not be affected, it is likely that interest will be affected given the interest cost commitments on government for 2023 and beyond.
Interest Payment for 2023 is projected at GH¢52.5 billion (GH¢52,550 million) representing 6.6% of GDP which is almost double the GH¢32.1 billion (GH¢32,101 million) paid in 2022 which represents 5.4 % of GDP reflecting the higher cost of borrowing and the adverse impact of the currency depreciation on external interest.
Reducing the interest paid on the public debt, increases revenue significantly, drastic rationalisation of expenditure and restructuring SOEs are expected to help reduce the public debt to sustainable levels by 2028.
OTHER MEASURES
The other measures are increasing revenue, reducing expenditure and restructuring of State Owned Enterprises (SOEs).
These measures are expected to reduce the public debt which stood at GH¢467.3 billion (GH¢467,371.31 million) or the equivalent of $48.8 billion ($48,871.34 million) as at the end of September 2022.
This represents approximately 75.9% of Gross Domestic Products (GDP) and the debt restructuring measures target to bring it down to 55% in the medium term.
When successful, the move will also open up financing streams and provide the needed balance of payment support from the IMF.
CUTTING COST
The budget projected a total revenue and grants of GH₵144 billion, representing 18% of Gross Domestic Product (GDP).
On expenditure rationalisation, Metropolitan, Municipal and District Assemblies (MMDAs), Ministries, Departments and Agencies (MDAs) and State-Owned Enterprises (SOEs) have been directed to reduce fuel allocation to political appointees and their Heads by 50 per cent.
The directive applied to all fuel allocation methods including coupons, electronic cards, chit systems, and fuel depots.
All non-critical projects for 2023 financial year are on hold.A moratorium on the purchase of vehicles for government work has also been extended and all sport utility vehicles in the state fleet are to be restricted to cross-country travel while the purchase of vehicles shall be restricted to locally assembled automobiles.
Only essential official foreign travel across government including SOEs shall be allowed, and no official foreign travel shall be allowed for board members.
All government institutions are to submit a travel plan for the year 2023 by mid-December to the Chief of Staff.
Meetings and workshops should be held within the official environment or in government facilities, while all government sponsored external training and staff development activities at the Office of the President, Ministries and SOEs have been put on hold for the 2023 fiscal year.
A further cut in expenditure is to affect appointees, including salary freezes and the suspension of certain allowances like housing, utilities and clothing.
A freeze on new tax waivers for foreign companies and the review of tax exemptions for free-zone, mining, oil and gas companies and a suspension on hiring civil and public servants are also in the 2023 budget.
IMF SUPPORT
Ghana officially started engaging the International Monetary Fund (IMF) in September 2022 for a loan support programme, which is aimed at establishing a macro-fiscal path that ensures debt sustainability and macroeconomic stability underpinned by key structural reforms and social protection.
The sustainability of debt has been continuously affected by the negative impact of exchange rate depreciation, particularly on external debt, as well as the crystallisation of significant contingent liabilities in recent years.
Concessional loans will continue to be the preferred financing option for projects, except in cases where non-concessional borrowing may be required to finance critical transformative projects.
126 SOEs WORTH GH₵110BN
The value of Ghana’s 126 State-Owned Enterprises (SOEs) is GH₵110 billion.
SOEs have consistently posted negative operating margins, averaging around 10%.
However, these SOEs are saddled with debts while government continues to inject capital into them to prevent total collapse.
About 50% of SOEs recorded GH¢5.3 billion in losses in their operations in the 2020 fiscal year.
Interestingly, Joint Venture Companies (JVCs) involving SOEs tend to do well and post profits.
Prudent management to generate 10% return on the assets can generate GH₵11 billion to the national coffers and the enterprises, resulting in the employment of more than 700,000 people in the public and civil service.
