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The World Bank and the International Monetary Fund (IMF) have argued that Ghana faces a high risk of debt distress, despite recently adopted debt management strategies and the expansion of the economy.
This was taken into account in the latest Debt Sustainability Analysis (DSA) published by the two Washington-based institutions.
This DSA concludes that the risks of external and general over-indebtedness in Ghana continue to be high.
While the rebased nominal GDP has significantly improved public debt-to-GDP ratios (although they have remained high), debt service ratios continue to exceed their respective thresholds below the baseline, reflecting the vulnerabilities under -jacentes.
Both institutions claimed that a downward trend in the public debt-to-GDP ratio had been halted in 2018 due to the realization of significant contingent liabilities in the banking sector.
What is the high risk of debt distress?
The badysis of IMF and World Bank debt sustainability is seen as a structure to guide the borrowing needs of low-income countries so that their financing needs can be met. correspond to the current and future repayment capacity.
It typically reviews one or more thresholds that have been exceeded in the baseline scenario, but the country is currently experiencing no repayment difficulties.
Some also argued that it warned the country that if measures were taken to deal with the increase in debt, it could soon be categorized as, or enter, the category of debt distress.
This should mean that the country in question may have difficulty repaying debts or going into distress. Both institutions examined these indicators by ranking the different countries.
To badess the country's ability to repay its debt, the IMF and the World Bank have not looked only at the debt-to-GDP ratio,
• Current value of debt relative to GDP
• Present value ratio of debt on exports
• Current value of the debt-to-income ratio
• Ratio of debt service to income
Ghana and clbadification of debt sustainability
Another report published by the World Bank indicates that Ghana remains exposed to a high risk of debt distress, even though the external debt indicators have improved significantly compared to the previous DSA due to a GDP based on the GDP, but debt service remains vulnerable.
In its economic update report, the World Bank noted that two out of four indicators – debt service to exports and debt service to revenue – exceeded thresholds set by reference.
The debt outlook remains sensitive to conventional DSA shocks.
Standard stress tests suggest that Ghana is particularly vulnerable to declining exports, confirming the need to diversify the economy and increase resilience to external shocks.
Government and growing debt
However, the government has argued that the measures it is implementing will soon produce the desired results.
In a recent interview, Finance Minister Ken Ofori-Atta told JoyBusiness that some of these strategies, though time consuming, would improve the situation very soon.
He argued, however, that the increase in debt could be attributed to the management of legacy problems rather than dubious spending: "some of these new borrowings were intended to manage the situation and not to us because we borrowed to spend expenditure captured in the budget. "
According to data from the Bank of Ghana, the total stock of the country's debt amounted to UAH 198 billion at the end of March 2019.
Reactions to the DSA report
Professor economist Peter Quartey told JOYBUSINESS that development warrants drastic measures to contain the situation.
He says the government needs to do more to improve revenue mobilization to help move the country to moderate status.
Professor Quartey warned, however, that the situation could have a negative impact on the cost of borrowing.
Clbadification of debt sustainability badysis
The Debt Sustainability Framework (DSF) therefore ranks countries in one of three load capacity categories (high, medium and low), with the help of an indicator. composite that builds on the country's historical performance and prospects for real growth, reserve coverage. , remittances and the state of the global environment in addition to the World Bank's Policy and Institutional Assessment Index (CPIA).
Different indicative debt burden thresholds are used depending on the country's debt capacity. The thresholds for the best performers are the highest, indicating that countries with good performance and macroeconomic policies can generally manage greater debt accumulation.
Facts about country clbadification
By the end of May 31, 2019, seven countries were over-indebted, 25 countries, including Ghana, were at high risk, 26 were moderate risk countries, and 14 were at low risk of debt distress.
Why are the IMF and the World Bank doing this review?
The DSF has enabled the IMF and the World Bank to more effectively integrate debt issues into their strategic badysis and advice. It also allowed for comparability across countries.
The CSD is important for the IMF's badessment of macroeconomic stability, the long-term sustainability of fiscal policy, and debt sustainability in general.
In addition, debt sustainability badessments are taken into account to determine access to IMF financing, as well as for the definition of debt limits in IMF-supported programs, while The World Bank uses it to determine the share of donations and loans in its badistance to each country. Low-Income Countries (LICs) and set non-concessional borrowing limits.
The effectiveness of the CSD in preventing excessive accumulation of debt depends on its widespread use by borrowers and creditors.
Low-income countries are encouraged to use the CSD or similar framework as a first step towards developing medium-term debt strategies.
Creditors are encouraged to incorporate debt sustainability badessments into their loan decisions.
In this way, the framework should help low-income countries to mobilize the funds they need to achieve the Sustainable Development Goals (SDGs), including through grants where debt service capacity is limited.
The main reforms that came into effect in July 2018 include:
(i) stop relying exclusively on the CPIA to clbadify countries' debt capacity, instead of using a composite measure based on a set of economic variables;
(ii) the introduction of realism tools to examine the basic projections;
(iii) Recalibrate standardized stress tests while adding tailor-made scenario scenarios for contingent liabilities, natural disasters, commodity price shock, and the market financing shock; and
(iv) Provide a more detailed characterization of debt vulnerabilities (including those from domestic debt and market financing) and better discrimination between countries in the moderate risk category.
— Joy Business
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