It is official. Ghana’s total debt to GDP ratio is now 80.1% as at the end of 2021. That’s the latest figure put out by the Bank of Ghana in its summary of Economic and Financial Data for 2021, conspicuously leaving out the Financial Sector Resolution Bond which if added should put the country’s debt to GDP ratio at a staggering 83.5%.

According to the figures released, the cumulative debt went up from 77.8% in November 2021 to 80.1% of GDP by the close of the year. Ghana’s public debt minus the financial sector bailout now stands at 351.8 billion cedis ($58.6 billion) from 291.6 billion cedis ($50.8b) in 2020. The debt as a percentage of GDP also rose sharply by 4.1 % from the 2020 figure of 76%.  The budget deficit however declined by 2% from 11.7 % at the end of 2020 to 9.7% last year. In categorizing the debt, external debt accounted for 38.7% of GDP whiles domestic debt including the financial sector bond accounted for 44.8% of GDP. This should put the total debt to GDP figure at 83.5% and the total amount at 366.7 billion cedis which is directly in line with the IMF’s own projection for 2021. The figure is expected to increase to 84.9% of GDP at the end of 2022.

This just goes to confirm the dire state of Ghana’s finances which many analysts have predicted spells doom for our economy. Bloomberg in January this year headlined in its article that “Ghana Debt Moves Deeper into Distress as Investors lose Patience”. According to the publication, the news portal predicted Ghana’s debt to GDP at 81.5% at the end of 2021, a situation that had put foreign investors and market participants on the edge as they questioned the government’s ability to implement some of its major revenue policy measures as presented in the 2022 budget, leading to the market pricing into Ghana’s bonds the perceived risks of having a slim majority in Parliament and the consequences thereof.

But in a sharp rebuttal, the Ministry of finance described Bloomberg’s publication as factually inaccurate. According to a statement issued by the Finance Ministry, Ghana’s end of year debt to GDP was not likely to exceed 80%, claiming the current 78.4% of debt to GDP as at the end of November 2021 indicated a reduction in the rate of debt accumulation (i.e., declining by half to 18% as at November 2021 from 34% in 2020). In fact, the Ministry praised itself for instituting an improved debt and liability management system.

“There are some serious factual errors in the article, which may give investors some cause for concern, if not corrected. For example, Bloomberg stated 81.5% as the end of year debt to GDP ratio. This is incorrect. Our provisional nominal debt to GDP, as at the end of November 2021 was 78.4%, which is the latest data available. December revenue collections are seasonally the largest for any year, it is unlikely that our financing requirements in December will result in us exceeding 80% debt to GDP by December 2021”. The Finance Ministry said.

The Ministry attributed the slow growth of the economy to the impact of the Covid-19 pandemic on the economy and attributed the increase in debt to GDP figures from 62.4% in 2019 to 76.1% in 2020 to the financing of additional Covid-19 related expenditures.

After careful review of the latest figures by and the Finance Ministry’s earlier position, it is difficult to conclude that Bloomberg’s debt to GDP figure of 81.5% for 2021 was exaggerated. In fact, the figure put out by the Bank of Ghana only sets the debt to GDP figure at 80.1%, slightly below Bloomberg’s prediction, without including the debt incurred from the financial sector clean-up. It beggars belief as to why the Bank of Ghana will leave out the financial sector clean-up debt when the government itself has argued severally that the country’s debt position is aggravated by that singular intervention. The only reason, we presume is to massage the figures and present a glorious picture to the international markets. It is also curious that the financial sector bond will be placed under domestic debt, but not added to the final debt to GDP figure.

However massaged the figures may look or sound, our situation is terribly bad. When government debt exceeds 90 percent of GDP the rate of economic growth declines by about one percentage point annually. One of the main challenges of having a high debt to GDP ratio of over 80 percent is that there is a higher risk of debt default which often triggers panic on the domestic and international market. As the government strives to maintain a positive primary balance target for 2022 and beyond, the timing, unfortunately, appears bad as the effects of covid-19 and the current Russia-Ukraine war may be a hindrance because governments typically will like to borrow to stimulate growth and boost aggregate demand.

Credit Rating agency S&P Global projects that Interest payments alone will absorb 46% of the government’s revenues. This has led to a downgrading of Ghana’s sovereign ratings, the lowest level in the “highly speculative “junk bond category and some with a negative outlook. In January yields on governments local benchmark 10-year bond hit 21.5%, the highest since the onset of the pandemic, putting further distress on Ghana’s bonds. There were price drops on several of the country’s dollar-denominated bonds which are usually held up by international funds, dropping 7 cents from year to date while longer-dated ones trade at 70 cents a dollar.

The world bank in a study found that countries that exceed a debt-to-GDP ratio of 77% for prolonged periods experience significant slowdowns in economic growth, with every percentage point of debt above this level costing countries up to 0.017 percentage points in economic growth. This situation according to experts is even more prominent in emerging markets, where each additional percentage point of debt over 64% annually slows growth by 0.02%.

According to the October 2021 edition of the World Economic Outlook Report, Japan had the highest level of general government debt-to-GDP ratio at 257%. Next was Sudan, Greece, Eritrea, Cape-Verde, and Italy with a reading of 210%,207%,175%,161% and 159% respectively.