Ghana - Total Debt Service (% of Exports of Goods, Services and Primary Income)

Ghana - Total debt service (% of exports of
goods, services and primary income)

Total debt service (% of exports of goods, services and primary income) in Ghana was 5.07 as of
2014. Its highest value over the past 39 years was 56.64 in 1988, while its lowest value was 2.33
in 2011.
Definition: Total debt service is the sum of principal repayments and interest actually paid in
currency, goods, or services on long-term debt, interest paid on short-term debt, and repayments
(repurchases and charges) to the IMF.
Source: World Bank, International Debt Statistics.
Projections beyond 2017

The IMF is only able to predict that Ghana will be able to keep paying its debt by making very
optimistic predictions about the future.
The IMF and World Bank DSA projects that external debt service will continue to stay high for
many years, still being almost one-quarter of government revenue in2035. However, it also
projects that overall external debt and total public debt will gradually fall as a percentage of
GDP. This assumes that growth in GDP measured in dollars is high, averaging over 8% in
nominal terms. It also assumes there is a primary surplus every year, from a height of 2.3% of
GDP in 2017 to 0.9% by 2025 and 0.1% in 2035.However, the predictions for dollar-GDP growth
in the DSA have already proven over-optimistic compared to the more recent April IMF World
Economic Outlook for 2016 and 2017, which, as noted above, indicates that external debt will
continue to rise.
The only way the IMF can predict Ghana’s debt will keep being paid is by assuming high growth
in dollar GDP, averaging 8.2% a year the government collecting around 19–21% of GDP in
revenue every year, i.e., revenue growing in line with GDP a fall in the average interest rate
paid on external debt from 5.1% to 4.1% over the medium term a large primary surplus by 2017
of 2.3%, and continual surpluses after, albeit at a falling proportion of GDP Any significant
failure in these assumptions could cause debt to increase further out of control, ultimately
costing the people of Ghana more if it continues to be paid.
Yet all of these assumptions are either optimistic or require significant sacrifices’ Growth in $
GDP of 8.2% a year: Between 2008 and2015, Ghana’s GDP grew from $28.5 billion to
$36billion,90 which is the equivalent of less than 4%annual growth – less than half the rate
assumed by the IMF.
growth in government revenue in line with GDP, collecting 19–21% of GDP each year:
According to the IMF World Economic Outlook, Ghana has only once collected 19% of GDP as
government revenue in a year, in 2011. Between 2008 and 2014, the most recent year with
confirmed figures, government revenue was on average 17.4% of GDP. Of low- and middle-
income countries that grew at 8.2% or more a year in dollar terms between 2008 and 2014,
45%saw their government revenue as a percentage of GDP fall over the same time. For 32% it
remained roughly level, and in 22% it increased.91 Maintaining or increasing government
revenue during periods of high economic growth is possible, but it is by no means given Interest
rates:
It will be difficult for the interest rate on external debt to fall given that the rate paid on bonds
has been increasing, the US$ interest rates are increasing, and that Ghana’s debt has increased
so dramatically that private lenders are now less willing to lend than a few years ago Primary
surplus: Since its bailout and structural adjustment programme began in April 2015 the IMF has
continually been revising down projections for the size of GDP measured in dollars. In April
2015, the IMF predicted that GDP would be $42.5 billion in2016 and $47.2 billion in 2017.
These amounts have fallen in every review, and the latest prediction in the April 2016 World
Economic Outlook is that GDP will be $38.2 billion (down 10%) in 2016 and $40.9 billion(down
13%) in 2017. These falls mean that by 2017, government revenue is now predicted to be
$8.3billion rather than $9.2 billion. This could either be because IMF projections were just
wrong, or because the cuts and tax increases introduced as part of the programme have
reduced dollar growth. Either way, if more cuts and tax increases are introduced in response to
targets being missed, it is likely that this will further reduce the growth rate, a classic debt trap
where austerity leads to less growth, which increases the relative size of the debt, which leads
to more austerity and less growth, and so on. There is an expectation and fear that the
spending cuts and tax rises will intensify after the December 2016 elections, including job
losses, which the government has not wanted to introduce before the vote. As one Ghanaian
academic told us at a meeting in May 2016, “only after the elections will the true
austerity programme begin”.
19. High powered money

The uncontrolled growth in high-powered money and the consequent inflation has also
contributed to instability in the nominal exchange rate. Despite large, often abrupt, falls in the
exchange rate, there have been extended periods of time (for example, 1995-1998) when these
were not sufficient to offset increases in the overall price level (inflation), leading long periods of
real appreciation and a consequent decline in Ghana’s international competitiveness.

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Ghana - Total Debt Service (% of Exports of Goods, Services and Primary Income)

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Ghana - Total debt service (% of exports of

goods, services and primary income)

Source: World Bank, International Debt Statistics.

Projections beyond 2017

19. High powered money

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