Ghana’s Debt Sustainable Despite Risks – IMF

The International Monetary Fund (IMF) has said Ghana’s public debt stock remains sustainable despite external and overall debt being at high risk of debt distress.

According to the Bretton Wood institution, the shocks from the COVID-19 epidemic (collapse of oil prices, the decline in trade, and lower non-commodity growth) are expected to deepen current account and fiscal deficits over the medium-term.

This will result in a higher debt path compared to the November 2019 Debt Sustainability Analysis (DSA).

The Fund’s comments come on the back of rating agency Moody’s’ downgrade of the Ghanaian economy to negative but affirmed the B3 ratings.

In its Country Report on Ghana after disbursing US$1 billion support to the country to contain the impact of the COVID-19 on the Ghanaian economy, the IMF said “the standard stress tests have been augmented to reflect a possible scenario with a stronger outbreak and protracted national lock-down. The growth shock has been increased to two standard deviations and exchange rate depreciation has been increased to 40 per cent”.

"Under these extreme shocks, debt still remains sustainable.”

It continued to explain that debt-service indicators are not on an explosive path.

“Furthermore, the DSA shocks likely to exaggerate the impact on these indicators over the medium-long run given that once the COVID emergency is solved and the elections, are over stressors such as risk premia, low commodity prices and weak domestic revenues would improve significantly. The inclusion of the contingent liability stress test at 5% of GDP should also be adequate to cover additional financial sector costs from the impact of COVID-19”, the Fund pointed out.

It, however, said a deeper global slowdown could have a greater impact on oil prices, private transfers and investment and further weaken the exchange rate, adding, a more prolonged crisis could create additional liquidity risks into 2021.

The stress tests show that, of these risks, exchange rate depreciation, export and commodity prices shocks that are associated might have the greatest impact on debt sustainability.

Ghana’s total debt hit GHS 218 billion, about 63% of the Gross Domestic Product at the end of 2019.

Out of this, $20.3 billion is foreign debt, representing 32.5% of total debt.

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