ECONOMIC policy think-tank, the Institute for Fiscal Studies (IFS) has advised a speedy restructuring of the external component of Ghana’s public debt stock since “the external debt component has serious exchange rate implications and is the main trigger of the current macroeconomic instability.”
The IFS contended that the IMF programme’s external financing gap estimates indicate that Ghana’s balance of payments and foreign reserves positions remain under stress, with the outlook substantially dependent on the country securing concrete external debt relief.
“We urge government to expedite the external debt restructuring negotiations to further improve fiscal and macroeconomic certainty,” the Institute said.
Addressing journalists in Accra where the Institute communicated its review of Ghana’s Extended Credit Facility (ECF) programme with the International Monetary Fund (IMF), Economist and Senior Research Fellow Dr Said Boakye stated that “we believe that the restructuring of the external debt component of Ghana’s public debt has not been given the urgency that it deserves.”
The IFS noted that to complement the fiscal adjustment in restoring public debt sustainability, the government pledged to comprehensively restructure its domestic and external debts. Within that context, the programme estimates that the restructuring of domestic government bonds, which was concluded in February 2023, would yield cash debt relief of GH¢50 billion in 2023 alone. The program is also targeting debt service relief of US$10.5 billion over the 2023–2026 period from the external debt restructuring.
According to Dr Boakye, even though the underlying ECF-supported programme had been given full approval by the Executive Board of the IMF, details of the negotiations and the kind of savings to be made regarding the external debt restructuring were not yet known, “as, to the best of our knowledge, negotiations are still ongoing, even though the domestic debt restructuring has largely been completed.”
He referred to the Institute’s review of the 2023 budget statement and the debt restructuring programme in December 2022, which review said , “given that the external debt component of Ghana’s public debt has serious exchange rate implications, the main trigger of the current macroeconomic instability, we expected the government and its IMF/World Bank partners to pay greater attention to the restructuring of the external debt.”
The IFS wondered why the restructuring of the external debt had been made contingent on the completion or success of the domestic debt restructuring.
“It is clearly visible from the approved programme that the external debt restructuring is critical to help the country meet its large fiscal and external financing needs, as the crisis has severely restricted both the space and opportunities to borrow by the government,” Dr Boakye noted.
The estimated external financing gap, net of IMF- and World Bank-pledged financing, of US$10.5 billion over 2023–2026 suggests that a deep external debt restructuring is required, which underlines the need for the government to seek a speedy and impactful debt relief by negotiating for permanent debt service savings in addition to rescheduling of obligations.
Overreliance on taxation for revenue will hurt businesses, industries
The IFS was concerned that the programme’s effort to increase government revenue mobilization relied unduly on taxes.
“As a prior action for the programme, many taxes were introduced in the 2023 budget, and more are likely to follow under the tax-centered revenue strategy. Yet, overreliance on taxation is certain to hurt businesses and industries, and ultimately harm the economy’s competitiveness and long-term growth potential,” Dr Boakye added.
He maintained that although in relation to its peers, Ghana’s public revenue generation was low and should be expanded, a tax-centered approach was not the way to go.
He stated, “from IFS’ research, the revenue gap between Ghana and its peers is largely due to the country’s relatively poor revenue generation from the extractive sector, which is the result of leaving the sector in the hands of multinationals through concession arrangements that yield paltry revenue to the state, while the multinationals repatriate billions of dollars in resource rents.”