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IMF warns Ghana to cut growing public debt

The International Monetary Fund (IMF) says the government must tame its debt in order not to be debt trapped.

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Deputy Managing Director of IMF, Mr Min Zhu,
Deputy Managing Director of IMF, Mr Min Zhu,

Ghana`s debt sustainability has become a vexed issue following the mounting public debt and government`s strong appetite to borrow from the international market.

Deputy Managing Director of IMF, Mr Min Zhu,
Deputy Managing Director of IMF, Mr Min Zhu,

A Deputy Managing Director of IMF, Mr Min Zhu, told the GRAPHIC BUSINESS in an exclusive interview in Lima, Peru, that Ghana must ensure that it borrowed within limits in order not to fall into debt the unsustainability trap.

?Ghana can and must tame its debt,? he said, adding that efforts must be made not to derail the progress so far made in keeping to its fiscal consolidation?.

The fund currently says Ghana is at the risk of high debt distress.
The government issued another Eurobond on October 7 to raise US$1 billion, bringing to total US$2.75 billion Eurobonds issued in three consecutive years. This has enabled the country?s external debt to once again overtake domestic debt as the major contributor to total public debt.

But non-concessional external debt stock increased significantly from US$90.1 million to US$838 million in 2008, and then to US$1.45 billion in 2012. In 2007 and a couple of years ago, the country borrowed from the international financial markets, selling bonds, which were denominated in dollars (Eurobond).

At a news conference at the just ended IMF/World Bank annual meetings held in Lima, Peru last week the Deputy Director, Fiscal Affairs Department of the IMF, Dr Sanjeev Gupta, said that the fund projected that Ghana would achieve 72 per cent debt to Gross Domestic Product (GDP) by the end of the year.

?The projections that we have for debt-to-GDP ratio of 72 per cent is based on the projected deficit this year, plus the growth. So it is a projection, not the actual for 2015.

?The main objective of the authorities in Ghana has to be to stabilise debt-to-GDP ratio, and to bring it down over time, so as to restore macroeconomic stability going forward.

So in this regard, it is very important that the authorities control the wage bill and minimise the risk of fiscal overruns from next year`s elections.

?And so, this is absolutely crucial as far as the fiscal stability is concerned going forward. And the authorities have taken some positive measures of liberalising fuel prices this year,? he said.

Analysis by policy think tank , Insittute for Fiscal Studies showed that Ghana?s public debt situation worsened after 2012 as the country faced a high risk of debt distress and increased overall debt vulnerability
Total public debt rose sharply from GH?35.1 billion or 48.4 per cent of GDP in 2012 to GH?76.1 billion, equivalent to 67.1 per cent of GDP in 2014 and by end-March 2015, the total public debt stock had reached GH?88.2 billion, representing 65.3 per cent of GDP.

This implies that the debt stock increased by GH?53.1 billion or over 151 per cent between December 2012 and March 2015, made up of GH?6.2 billion in 2012, GH?16.8 billion in 2013, GH?24.2 billion in 2014. As of July 2015, the total debt stock stood at GH?83.17 billion.

Source : graphic business

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