Ghana’s debt will remain stable at 75% of GDP in 2024 – Fitch

Economic news for Tuesday, March 9, 2021

Source: Ghanaian weather

03/09/2021

Ghana’s debt will reach around 75% of gross domestic product (the total value of goods and services produced in an economy over a period of time) from 2024, the international rating agency Fitch said in its latest article on “The Debt of the energy sector is a risk for Ghana. Post-pandemic debt trajectory ”.

As a result, debt will continue to rise in 2021 and 2022 due to the high spending related to the COVID-19 pandemic and the realization of the liabilities of the energy sector.

Fitch confirmed Ghana’s sovereign rating (B / Stable) in October 2020, pending a gradual recovery, both in economic performance and in tax revenues following the pandemic shock, in the availability of funding sources. external and internal policies and the possible stabilization of debt / GDP.

The report states that “However, Ghana’s public finances are complicated by a history of domestic arrears and contingent liabilities which will continue to increase its stock of public debt.”

He also said that the country’s energy sector faces both outstanding debt and continued losses due to an inefficient operating environment and an unnecessary tariff structure.

Some energy experts raise fears of a probable collapse of the electricity sector which could have a significant effect on the economy.

During the COVID-19 pandemic, the government provided electricity subsidies to consumers, but it is not known whether the subsidies have been paid to date.

In December 2020, the Ministry of Finance announced that its progress on the Energy Sector Stimulus Program (ESRP) included the clearance of $ 1 billion in debt to independent power producers and utilities. deals with power generation companies that could save up to $ 5 billion. .

“We believe that the government’s actions will prevent the worst-case scenario, but that additional liabilities of up to US $ 12 billion could fall on the government if these efforts fail,” the report said.

Although the government has adopted the energy sector reform program to wipe out remaining liabilities and put the sector on a clear financial footing to avoid future deficits, Fitch said the implementation of the program has been mediocre.

He estimates that the current unrivaled debt of the energy sector is between 4 and 5% of GDP, stressing: “We expect that efforts to clear the existing arrears in the energy sector will add just over 1%. % of GDP to Ghanaian government cash deficit each year through 2023. ”

However, the amount of energy sector arrears that materialize in the government’s balance sheet beyond 2023 will depend on the success of the government’s efforts to reform the energy sector.