Ghana’s gross financing needs in 2020 exceeded 20% of GDP – IMF

Multilateral institution, the International Monetary Fund (IMF) says Ghana’s gross financing needs for the year 2020 exceeded 20 percent of its Gross Domestic Product (GDP).

In monetary terms, that amounts to some $13.68 billion.

Despite having a financing need of $13.68 billion mostly due to the advent of the Covid-19 pandemic, government was able to raise some $9.37 billion (13.7 percent of GDP) to finance its needs for last year.

The $9.37 billion partially acquired from multilateral institutions such as the World Bank, IMF and African Development Bank, to finance government’s needs for last year is evidenced by the 13.7 percent year-on-year growth in the country’s public debt.

According to the Finance Minister, Ken Ofori-Atta, Ghana’s financing needs for the year 2020 were due to some non-recurrent burdens such as the fiscal impact of Ghs 25.2 billion due to Covid-19, financial sector costs of Ghs 21 billion, costs of excess capacity charges of Ghs 12 billion paid to Independent Power Producers (IPPs).

 country’s financing needs refer to the fiscal gap between its expenditure and revenue which it has to find money by either borrowing or increasing taxes to finance the fiscal gap.

The IMF in its May 2021 Article IV Consultation paper which assessed Ghana’s economy, stated policy interventions by government during the heat of the pandemic last year exacerbated the country’s pre-existing fiscal rigidities and public debt vulnerabilities.

Adding government’s fiscal deficit and debt stock both increased on the back of the interventions.

 “Government interventions in 2020 also exacerbated pre-existing fiscal rigidities and public debt vulnerabilities. The government deficit, including energy and financial sector costs, reached 15.5 percent of GDP, while annual gross financing needs exceeded 20 percent of GDP. Public debt rose to 78 percent of GDP in 2020, from 64.4 percent in 2019, including ESLA of GHs7.63 billion in 2020,” stated Carlo Sdralevich, head of the IMF Staff Mission team to Ghana which issued the Article IV Consultation paper.

Mr Sdralevich however, noted that, the policy interventions were critical to safeguarding livelihoods and ensuring a faster rebound of economic activities.

Adding that, Ghana is expected to experience a growth rate of 4.8 percent this year on the back of government’s policy interventions.

“Policy interventions in 2020 were also critical to safeguard livelihoods and paved the way for a faster rebound of economic activity. Real GDP growth is projected at 4.8 percent in 2021, driven by a rebound in mining and services,” he stated.