• IMF projections for debt, revenue and interest all over-optimistic
• But public spending cut by more than initially planned
• Debt crisis expected to continue for next twenty years, even if there is high economic growth
Ghana is three years into its $1.1 billion IMF bailout programme, and debt indicators across the board are worse now than expected when the programme began in 2015.
Ghana’s external government debt is now 46% of GDP, but the IMF had expected it to be 40% in 2018. Total public debt was expected to be 61% by 2018, but now the IMF says it will be 71%. Most dramatically, external government debt service was expected to be 21% of government revenue in 2018 when the bailout began, but it is now going to be more than double, 56%. In the medium-term, external debt service is expected to be in the mid-30% of revenue range, compared to mid-20% at the start of the programme.
There are various reasons why Ghana’s debt situation, and especially its debt payments, are worse now than expected by the IMF at the start of its loan programme. Firstly, real GDP growth has been 3% lower in total over the last three years than predicted in 2015.
More significantly, government revenue collection has been dramatically worse. The IMF programme said revenue would grow from 17.8% of GDP in 2014, to 20.3% by 2018. However, it has actually fallen back slightly to 17.6%. And external debt interest costs are far higher. The IMF had expected the average nominal interest rate on debt owed in foreign currencies would have fallen from 6.2% in 2014 to 4.4%. In fact, it has risen to 6.9%.
In our 2016 report, Jubilee Debt Campaign warned that the IMF’s forecasts for growth, and expectation that Ghana could increase revenue collection alongside high growth, were optimistic. We also said it would be difficult for nominal interest rates to fall. So far, these views, rather than the IMF’s, have been correct.
The one thing which has not contributed to the debt situation being worse than expected is public spending, which has been cut by more than first planned. In 2013, Ghanaian government expenditure (excluding interest) was GH₵21 billion (2013 prices), which amounted to GH₵820 per person. By 2017, it was expected to be GH₵21.8 billion (in 2013 prices), which would have been a fall to GH₵770 per person.
However, in 2017 spending was actually GH₵19.3 billion (in 2013 prices), GH₵680 per person. Of course, the cut in spending by 17% per person could be one reason why growth has been lower than expected.
Ghana is now left with a deeper debt crisis going on for longer. Even with projected real annual growth rates averaging 6% a year, the IMF expects external government debt payments to stay above 30% of revenue into the late-2030s.
Moreover, the situation may get worse for Ghana. In the three weeks since the IMF review was completed, the Ghanaian cedi has fallen 4% against the dollar, which increases the relative size of debt payments in foreign currencies. Having been falling since 2016, the yields on Ghana’s bonds (which imply the interest rate on future borrowing) have started to increase. The yield on Ghana’s bond coming due between 2028 and 2030 has increased from 5.9% in January to 7.5% now (and payments on this bond are partially guaranteed by the World Bank, so the interest rate on future borrowing will actually be higher). Further US interest rate rises may make both these figures worse.
Ghana’s IMF programme expires in April 2019. Both the Ghanaian government and IMF should ask why the Ghanaian people, and IMF loans, should continue to pay the high interest rates to foreign lenders, and instead consider a debt restructuring to deal with the huge debt payment burden.