Ghana faces real risk of failing to pay debts on time - IMF

The once shining star of Africa, Ghana, is facing a real and serious risk of falling into a state which may make it extremely difficult to pay its debts on time.

The International Monetary Fund (IMF) has put Ghana into the category of countries that are few steps away from falling into the league of High Debt Distress Countries (HDDC).

According to the IMF, Ghana was put into this category after its debts in relation to taxes, revenue, exports crossed the minimum threshold that measures a country's distress status.

The FUND argues that it is required to do this to ensure that any financial institution or investor dealing with Ghana appreciates and understands the country’s ability to pay its debts on time.

The latest categorization of Ghana by the Washington-based lender is coming after the FUND’s new fiscal monitoring report projects that, Ghana’s debt-to-GDP ratio might hit the dreaded 70 percent by the end of this year.

The country's public debt as of December last year, according to the Bank of Ghana, stood at about 76 billion Ghana cedis.

But with the new loans that have been approved by Parliament since January to date, the debt levels might have gone higher.

The development has serious implications on the cost of borrowing for Ghana, as government is now doing more borrowing outside.

This means that the country might be paying a little more to issue bonds and borrow from international and even domestic institutions.

Government is expected to pay about 10 billion Ghana cedis as interest payments this year alone.

If the loans are not invested in self-financing projects, government may be compelled to increase taxes to take care of these debts or borrow more from the local and international banks.

Borrowing more domestically will undoubtedly lead to increase interest rates hikes and crowd out the private sector.