Ghana likely to default on its debt obligations but… – Seth Terkper

Ghana has on several occasions warnings and alerts from rating agencies and major multilateral institutions such as the World Bank, IMF, and Fitch Ratings over its stagnant revenues and rising debt vulnerabilities.

Fitch Ratings for instance, in June, reviewed downwards Ghana’s Long-Term IDR from ‘B’ to ‘B-‘ indicating an increase in the country’s default risk in repayment of its debts.

The World Bank and the IMF have also severally cautioned Ghana on the need to reduce its borrowings to tackle the issue of rising debts given that the country is already at risk of high debt distress.

Consultancy firm, PFM Tax Africa Network, headed by former Finance Minister Seth Terkper, has also expressed its worry over the country’s dire fiscal situation evidenced by continuous higher expenditures and deficits as against stagnant revenues.

Presently, government expenditure driven by compensation, interest payments – the two largest expenditure items of government which is financed by borrowings– has outpaced tax and total revenues by over 200 and 180 percentage points respectively.

In view of the current fiscal situation of the country, Mr Terkper in a media briefing with business journalists in Accra on Friday, August 13, 2021, noted that should the country continue on the current fiscal trajectory, the country may default on its debt obligations.

“We are borrowing to finance debts, compensation and interests and not to even talk about amortisation and the rest, we may get to that point [debt default] if the crowding continues, or if the borrowing to meet refinancing and other expenditures like stimulating the economy as with government programmes [such as the Ghs 100 billion Ghana CARES] continues, the revenue is not going to come from the budget because it’s gone to interest payments and all that so it’s going to come from borrowing which is expensive by the way and so we may get there [debt default],” he stated.

He, however, expressed optimism that despite the worrying fiscal outlook of the economy and the likelihood of Ghana defaulting on its debt obligations, the country is capable of pulling back from such a situation [defaulting on its debt] by putting together a programme to reverse high costs of interest payments which is now increasing government expenditure and for which government has to borrow to finance thereby increasing its debts the more.

“But I don’t want to say that because we are capable as Ghanaians in pulling back and putting a programme together to reverse costs and I say so as a former public servant [Finance Minister], and because of the capability I know is within the public sector, and not just at the fiance ministry. Because you know when you do your homegrown policies, it’s a sectoral policy, it involves sectors and how to control expenditures and the rest and all the sectors come with their programmes, so I don’t think we should belittle the public sector and its ability to pull back [from defaulting].

“I have enormous respect for those who serve in the current administration, and also served in the Kufuor administration and were involved in austerity programmes, because all the 17 austerity programmes are not just NDC programmes and some of them who are now ministers can present us with homegrown policies which would be supported by the World Bank, AfDB and the others.”

“So I would rather hope that we avert the situation and I also think it’s positive that government is now putting together a domestic revenue automation system to enhance revenue mobilisation and if that is fast-tracked, GRA will be in a better position to rake in more revenue to support government finance its debts [sic],” he added.