Local currency depreciation pushes Ghana debt beyond 70 percent threshold.

Ghana’s total debt stock has crossed the 70 percent threshold since June 2015, the Bank of Ghana has said.

Information available on the central bank’s website indicated the stock of debt has reached 94.5 billion Ghana cedis or 23.92 billion U.S. dollars since June, representing a 70.9 percent of Gross Domestic Product (GDP).

More than half of the debt stock is owed to offshore lenders while domestic debt hovers around 26.6 percent.
As of May, the debt stock of Ghana stood at 89.5 billion cedis, equivalent to 67.5 percent of GDP, making the jump quite significant.

The governor of the central bank, Henry Kofi Wampah, explained here on Monday the increase was mainly due to exchange rate differentials between May 2015 and June 2015.

While one U.S. dollar was exchanged for 4.02 cedis by the end of May, it was sold at an average rate of 4.45 cedis by the middle of June, official records show.

Wampah however dispelled fears that with the current development, the country might have reached the dreaded threshold of a Highly Indebted Poor Country (HIPC) once again.

“I don’t think Ghana has automatically become HIPC with the current calculations, although we may be said to have reached levels that are similar to the pre-HIPC days,” he stressed.

The governor said the Eurobond which government would be issuing later this month would not necessarily increase the debt stock but might rather bring it down.

“Part of the proceeds of the 1.5 billion-dollar Eurobond would be used in debt substitution for some maturing debts while converting some short-term debts into longer-dated ones, thus bringing down the debt levels,” Wampah said.

He also added that, with the appreciation of the cedi in recent times against the major currencies, the exchange rate effect on the value of the debt in dollar terms would also be reversed to bring it back to the 67.5 percent levels recorded in May.

Razia Khan, Managing Director, Head of Africa Macro Global Research Standard Chartered Bank, gave her comments in a mailed response to Xinhua.

“Crossing the 70 percent debt-to-GDP threshold was, unfortunately, very predictable. It has been expected for some time. This highlights the necessity of Ghana reducing its domestic debt, which, given the high interest cost, has been adding significantly to its debt burden,” she said.

Economist Sampson Akligoh of Investcorp, a local investment banking group, however does not see any expected inflation threat for Ghana on the back of banking sector liquidity.

He said it was obvious that consumer demand had slowed in line with growth dynamics for Ghana.

“What is certain is that the country’s debt position as well as the expectation of foreign investors is for interest rate to remain high and l think the MPC is leaning towards that,” Aklogoh argued. Enditem

Source: Xinhua.