EXTERNAL DEBT OF GHANA

During the Finance Minister’s presentation and subsequent request for expenditure in advance of appropriation on the floor of Parliament (28th, October, 2020), he mentioned the intention of government to take a dip into the international capital market pool and issue a Eurobond of approximately $3 Billion with an option to increase to $ 5 Billion if market conditions are favourable. Find below the excerpt from the entire statement to Parliament that speaks to the intentions to borrow, externally.

“34. Mr. Speaker, to support the 2021 budget and liability management, we plan to source funding from the international capital market. This will comprise the issuance of sovereign bonds of US$3 billion with the option to increase it to US$5 billion should market conditions prove favourable. Out of the amount to be raised, US$1.5 billion will be used to support the 2021 budget and US$3.5 billion for liability management.”

All things being equal, if this materializes it would have an impact on our total debt stock. Total debt stock is divided into DOMESTIC & EXTERNAL DEBT. DOMESTIC DEBT looks at borrowing within Ghana and EXTERNAL looks at borrowing beyond the shores of Ghana. Our focus will be on the EXTERNAL DEBT and DATA would be sourced from the Bank of Ghana’s QUATERLY BULLETIN (Q2, 2020).

We will explore the following;

1. The total amount of our external debt stock?

2. What components make up the debt stock?

3. Structure of repayments?

1. Total external debt of Ghana as at June end (Q2) 2020 stood at approximately $24 Billion. This rose by 16.8% ($3.45 Billion) from the same period last year (Q2, 2019).

This rise in the stock of external debt is attributed to;

•  NET TRANSACTIONS (DISBURSEMENTS AND AMORTIZATIONS) DURING THE REVIEW QUARTER.
• EUROBOND ISSUED IN FEBRUARY 2020.
• IMF US$1 BILLION UNDER THE RAPID CREDIT FACILITY.

As a percentage of the total economy (GDP), external debt makes up 35.5% compared with 31.0% for the same period last year (Q2, 2019)

2. When we mention EXTERNAL DEBT/ BORROWING we definitely have a number of people, organizations or entities we borrow from. What/who are these CREDITORS? Find the categorization below;

• MULTILATERAL (e.g. IMF, WORLD BANK, AfDB)
• BILATERAL (e.g. Country to country borrowing through the country’s institutions such as JICA etc.)
• COMMERCIAL CREDITORS (e.g. Borrowing from an international bank such as HSBC, STANCHART, GOLDMAN SACHS, UBS, CRDIT SUISSE etc.)
• INTERNATIONAL CAPITAL MARKETS (e.g. Issuing SOVEREIGN BONDS-EUROBOND etc.)
• EXPORT CREDIT AGENCIES (e.g. AFRIEXIM BANK. These entities facilitate the business of trade-imports & exports and help companies mitigate the risks in these transactions. They are store houses of significant amounts of forex)
• OTHER CONCENSSIONAL LOANS (Institutions that offer loans on soft terms)

Let’s look at how much we owe (exposure) to each of the creditor categories. These borrowings are in foreign currency (US DOLLAR, POUND, EURO etc.)

From the data above it is evident that as at Q2, 2020 Ghana is most exposed to the INTERNATIONAL CAPITAL MARKETS (EUROBOND etc.) with an amount of $ 10.2 Billion which constitutes 42.6% of our external debt, followed by MULTILATERAL CREDITORS with $7.8 Billion which constitutes 32.5% of the external debt.

The bar chart below describes further what I have stated above over the course of five quarters. The trends in the various CREDITOR CATEGORIES.

3. But with these loans we have to pay back. Paying involves a combination of PRINCIPAL (portions of the original amount you took) and INTEREST (extra charge on the amount you borrowed).

This is what we term DEBT SERVICE PAYMENTS and this forms a considerable expenditure in the government’s budget. It’s the second highest item in terms of expenditure after compensation of public sector workers.

If you look closely at the table above, it spells out how much we are paying in PRINCIPAL (Prin) and INTEREST (Int) to our various CREDITOR CATEGORIES.

At the end of Q2, 2020 we had made a total payments(Principal & Interest) of $ 547 Million with payments to commercial creditors and sovereign bondholders constituting $252.33 Million and $211.58 Million respectively.

The debt story can be cut several ways to suit a number of narratives but I hope this has put things into perspective. The link to a conversation I had with Yaw Appiah Lartey of Deloitte Ghana is below for your perusal. We discuss these in the latter parts of the show.

SOURCES