Ghana's debt is sustainable but the economy is vulnerable – Gouverneur

Company News of Saturday, July 20, 2019

Source: Graphic.com.gh

2019-07-20

Ghana's public debt stock is sustainable, although the large foreign investor component makes the economy vulnerable, said Governor of the Bank of Ghana (BoG), Ernest Addison.

He called for a change in the discussion on the country's debt levels, from stock and amount to composition, explaining that the amount of debt in the hands of non-resident investors showed the level of vulnerability to which the economy was exposed.

According to the summary of financial and economic data released last Thursday by the Board of Governors, Ghana's stock of debt amounted to 200 billion ¢ GH, or 58.1% of national productivity measured in gross domestic product ( GDP) from the month of May this year.

press conference

The governor answered questions about the country's level of indebtedness at the Monetary Policy Committee (MPC) press conference held in Accra yesterday.

"Our badessment is that Ghana's debt stock is sustainable but this valuation depends on very high growth rates," he said.

Mr. Addison explained that high growth rates resulted in higher national income, measured by GDP, and a lower debt-to-GDP ratio, which was a key criterion for badessing debt sustainability.

"It also depends on some badumptions about interest rates and exchange rates," added the governor.

Debt growth

Data from the central bank showed that the stock of public debt closed last year at 173.2 billion GHAC, or 58% of GDP, but at 198 billion GHAC or 57.5% of GDP. March of this year.

It has further increased to $ 200 billion in May this year, in part because of exchange rate pressures on the external component of debt during this period, said the governor of the BoG.

Similar data provided by the Ministry of Finance showed that last March, foreign investors held about 67.17% of the country's debt, leaving just over 30% in the hands of domestic investors.

Changes and feelings

Dr. Addison stated that the composition was a concern given the vulnerability it presented.

He explained that while the central bank's badessment concluded that debt levels were sustainable, the country had to face the fact that the composition of its debt made it vulnerable to the feelings of foreign investors.

"I do not think we should avoid thinking that there are vulnerabilities; it's really the subject of the discussions, "he said.

"If you have some external debt and your debt is held by non-residents, you are vulnerable to exchange rate fluctuations.

"So the actual discussion should move from the issue of debt sustainability to an badessment of our vulnerability to change and feelings," he said.

In addition to exposing the stock of debt to the impact of exchange rate pressures, having a large portion of a country's debt in the hands of foreign investors means that these investors can easily sell their badets and move towards markets where yields are relatively higher.

IMF and World Bank Assessment

The Governor's observations on the sustainability and composition of the national debt stock are rooted in growing concerns that Ghana is accumulating debt at a faster pace, posing risks to the economy.

Already, the World Bank and the International Monetary Fund (IMF) have claimed that Ghana is at high risk of debt distress after their badessments revealed that the level of public debt exceeded three of their benchmarks. the sustainability of the debt.

The country entered the list in 2015 and has not since been able to break out of this slice.

In addition, in April of this year, a similar badessment by the Economic Commission for Africa (ECA) identified Ghana as one of the 11 countries in the subregion with a high risk of debt distress.

Maintaining the policy rate

However, the BoG has maintained its key reference rate at 16% for the third time since January of this year.

Addison said the bank's core mandate for price stability was on track, with inflation remaining in the target range over the last 15 months.

He stated that the MPC had found that the transmission effect of the exchange rate depreciation was fading and that the underlying inflationary pressures and expectations were well entrenched, d Il avait,,,,,,,,,,,,,,,,,,,,,,,,,,, where the decision to maintain the rate.

Domestic Perspectives

Addison said economic activity remains strong and diversified in the domestic market.

However, he noted that there were some risks badociated with growth, mainly due to the sluggishness of businesses and the recent increase in utility rates.

As a result, the governor said that growth should remain robust in the second half.

"The medium-term outlook for the real sector is positive, based on improved consumer confidence and continued recovery of private sector credit growth," said Dr. Addison.