Why the Domestic Exchange programme of Ghana?

On Sunday, 4th December 2022, the finance minister of Ghana, Ken Ofori Atta announced Ghana’s domestic Debt programme for the republic. The domestic debt exchange programme allows domestic debt holders to voluntarily exchange approximately the country’s   GH¢137 billion of domestic debt in the form of notes and bonds of the republic for new ones.

Why this domestic exchange programme?

According to the 2022 budget statement of Ghana, the total debt stock of the country in the year 2021 was GH¢351.8 billion representing 76.62% of our GDP.  With this 37.03% (GH¢170 billion) was owed internally and (39.59%) GH¢181.8 billion owed externally.

Ghana’s total debt as at September, 2022 was about GH¢467.4 billion(USD48.9 billion) which is around 75.9% of our GDP(2022 Budget of Ghana). Out of this debt, 37.77% (GH¢195.7 billion) are regarded as domestic debt whilst 44. 13% (GH¢271.7 billion) are regarded as foreign debt.

Why GH¢351.8 billion in 2021 representing 76.62% of our GDP and GH¢467.4 billion (USD48.9 billion) which is around 75.9% of our GDP?

This is what we call increasing at a decreasing rate. Our debts are increasing but the rate of increase is becoming smaller. The actual fact is that efforts are being made to reduce the debt.

The GDP in Ghana in 2021 was 459.1billion cedi, debt 351.8 billion, let us find out the percentage of our debt to GDP.

We do this by dividing our debt (351.8 billion) by the GDP 459.1 billion will give us 76.62%.

  • What about 2022?

Ghana’s GDP was about 615.8 billion (616 billion cedi) with debt of 467.5 billion

We have to divide our debt by the GDP and multiply by 100%

Let us check this out, 467.5 billion cedi divided by 615.8 billion cedi will give us 75.9%.

  • What is the meaning of the calculation?

Our debt stock to GDP is reducing, the GDP is increasing at increasing rate and the debt stock is increasing at a decreasing rate. GDP(total nominal income) of the country is increasing faster than our debt.

  • What can be deduced from the above?

 The country paid some of our debts but added additional ones with interest payments ballooning due to depreciation of the cedi. So, as we stand now, our debts are reducing compared with 2021 percent wise.

Look at something here, our debt!  75.9% of GDP?

Is it really a problem?

 We will only answer after we look at our revenue and expenditure.

Gross International Reserves (GIR) stood at US$6.6 billion, equivalent

to 2.9 months of import cover, at the end of September 2022 from the stock

position of US$9,695.2 million (equivalent to 4.3 months imports cover) at

the end of December 2021. This means that our reserves are being depleted as a result of payment of our debt through the depreciation of the cedi. We need to go to our reserve for payment of due debts.

According to the Bank of Ghana Data 2021; the country recorded total Revenue and Grants amounted to GH¢70.1 billion with tax revenue of 56.5billion representing more than 80% of total revenue of the country. Domestic revenue amounted to 68.9 billion cedi with grants of about 1.2 billion Ghana cedi.

Total Expenditure (including arrears clearance and discrepancy) for

the period amounted to GH¢109.4 billion. Critically observing the fiscal position of the country, our revenue (70.1 billion cedi) falls short of the expenditure of GHË109.4 billion. The country was in need of about 39.3 billion Ghana cedi as part of the deficit.

To understand our analysis clearly, let us check the 2022 figures from the bank of Ghana data.

In 2022, the country received total revenue of 98.1 billion Ghana cedi and at the same time spent 136.9 billion Ghana cedi. The country created a deficit of 38.8 billion Ghana cedi.

  • Can you observe something here?

2021 Ghana run a deficit of 39. 3 billion Ghana cedi and in 2022 ran a deficit of 38.8 billion Ghana cedi. What are the implications?

The country did reduce the deficit marginally by about 0.5 billion Ghana cedi.

Although the country is trying to cut down expenditure, our deficit is too high to use simple or marginal expenditure cuts.

The only fast option for the country is to move on and borrow to meet our needs.

This explains the reason for the country’s debt distress.

Now, let us check out some key facts about Ghana:

  • Total Debt stock 2022 was 467.5 billion Ghana cedi, 75.9% of GDP
  • Total revenue for the country as at 2022 was 70.1 billion Ghana cedi
  • Total expenditure of 109.4 Ghana cedi
  • Fiscal deficit in 2022 was 38.8 billion Ghana cedi

Ghana has requested 3billion USA dollars from the IMF. Please help me convert the dollars; let us use the bank of Ghana base rate of a dollar to 8 Ghana cedi. We are hoping to get 24 billion Ghana cedi.

Let us assume we get such an amount, it will be recorded as revenue but because it is a loan, it will increase our debt stock.

In 2023, Ghana’s projected total revenue, including IMF money, will be about 144 billion Ghana cedi against expenditure of about 191 billion Ghana cedi.

Look, we will have the IMF’s money which will give us fiscal space to operate but will still get a deficit of 47 billion Ghana cedi in 2023. No matter what, structurally Ghana cannot solve its problem with the 3billion IMF’s money. We would need a better position to push the nation forward economically.

Among the numerous options, the country took the debt exchange programme to be able to get more space to get into a better position but not a destination.

If you are IMF will you give 3billion dollars to Ghana for it not to make any impact?

Take your own business looking for a loan and the bank found out that, you owe other banks about 75.9% of your revenue and your expenditure is more than 100% of your revenue. Will the bank give you the loan?

Again, if you are the bank will you give such company a loan?

This liquidity (fiscal) trap Ghana finds itself

I hope the best advice you will give to the business is to go and make sure its books are proper before the loan. That’s what it’s supposed to be.

Ghana needs to control its debt to be able to make meaningful use of the 3billion dollars IMF facility.

The debt exchange programme will allow people and firms with Republic instruments to exchange it for new ones, which will be promise to be paid in later periods with different payment plans and interests. The country is looking forward to exchanging 137 billion Ghana cedi with new debt instruments. Doing so from 2023 to 2028 will help the nation reduce its debt-to- GDP by 55% .

Now: Look at something here, our debt!  75.9% of GDP?

Is it really a problem?  Yes, we are in debt distress. We cannot continue to borrow without checking our debt.

In the next article, I will highlight the effect of the debt exchange programme on Ghanaians.