GH¢70bn debt bounce exposes structural weaknesses in economic system – Oppong Nkrumah – Life Pulse Daily
Editor-in-chiefDecember 15, 20254 Mins read124
GH¢70bn Debt Bounce Exposes Structural Weaknesses in Ghana’s Economic System – Oppong Nkrumah
Introduction
The Ghanaian economy has recently faced a stark reminder that public debt can swell dramatically even when official statistics suggest stability. A surge of GH¢70 billion in just three months has reignited debate over the country’s structural weaknesses and the sustainability of its growth model. Kojo Oppong Nkrumah, Member of Parliament for Ofoase‑Ayirebi and Ranking Member of the Economy and Development Committee, warned that the apparent “decline” in headline debt figures was always a temporary illusion. This article unpacks the facts, the political context, and the broader implications for policymakers, investors, and ordinary citizens.
Key Points
- Heavy reliance on external financing, especially World Bank facilities.
- Inadequate diversification of revenue sources.
- Weak fiscal buffers that cannot absorb external shocks.
Background
Historical Debt Trends in Ghana
Since the early 2000s, Ghana’s public debt has fluctuated in line with commodity prices, fiscal policy choices, and external financing conditions. By the end of 2023, the debt stock stood at roughly GH¢350 billion. The government had previously reported modest declines in the debt‑to‑GDP ratio thanks to a combination of debt‑restructuring and currency appreciation. Those gains, however, were always contingent on stable exchange rates and disciplined borrowing.
Recent Currency Depreciation
The cedi’s value fell by about 20 percent in the last quarter of 2024, marking one of the steepest depreciations in recent memory. A weaker cedi raises the local‑currency equivalent of all foreign‑denominated liabilities, automatically expanding the measured debt stock without any new loans being taken.
World Bank Facility and Debt Restructuring
In November 2024, Ghana secured a US$360 million facility from the World Bank. According to parliamentary records, the administration presented the arrangement as a financing arrangement rather than a conventional loan. Critics argue that this framing obscures the true fiscal impact. Additionally, roughly US$1 billion of previously restructured debt has now been capitalised and recorded as new disbursements, further inflating the reported debt figure.
Analysis
Fiscal versus Monetary Drivers
Oppong Nkrumah stresses that neither fiscal policy nor monetary policy has undergone substantive reform to justify the recent surge. The fiscal deficit remains elevated, and public spending has not been curtailed. Likewise, the monetary authority has not implemented structural changes to monetary aggregates that would affect debt dynamics. Consequently, the debt increase is best understood as a pass‑through effect of exchange‑rate movements.
Impact of Cedi Depreciation on Debt Stock
When the cedi loses value, the cedi‑denominated equivalent of foreign‑currency debt rises proportionally. For instance, a 20 % depreciation of the cedi against the US dollar translates into a roughly 20 % increase in the cedi value of dollar‑linked obligations. In Ghana’s case, this mechanism accounts for about GH¢50 billion of the GH¢70 billion rise, as noted by the MP.
Accounting Treatment of Restructured Debt
Ghana’s practice of capitalising restructured debt as new disbursements has attracted scrutiny. Under International Public Sector Accounting Standards (IPSAS), debt restructuring can be recorded as a reduction in liability if the present value of future cash flows declines. However, when the restructuring merely extends maturities without reducing principal, the transaction may be treated as a new borrowing for accounting purposes. This nuance can artificially inflate the reported debt stock, masking the underlying fiscal position.
Structural Weaknesses Still Unaddressed
Even after adjusting for currency effects and accounting quirks, the structural weaknesses in Ghana’s economy remain. The country continues to depend heavily on commodity exports, has limited tax-base diversification, and lacks robust fiscal buffers. Without reforms that broaden revenue streams and improve expenditure efficiency, the debt trajectory is likely to remain volatile, especially in the face of external shocks such as commodity price swings or exchange‑rate volatility.
Practical Advice
For Policymakers
1. Transparent Accounting: Adopt clear disclosures that separate genuine borrowing from accounting re‑classifications. This will help parliament and the public assess true debt dynamics.
2. Fiscal Consolidation: Implement a medium‑term fiscal framework that targets a credible reduction in the primary deficit, coupled with a realistic debt‑to‑GDP trajectory.
3. Revenue Diversification: Accelerate reforms in sectors such as agriculture, tourism, and digital services to reduce reliance on cocoa and gold exports.
For Investors
1. Risk Assessment: Factor in exchange‑rate exposure when evaluating Ghanaian sovereign bonds. Hedging strategies may be necessary to mitigate currency‑related debt volatility.
2. Monitor Structural Indicators: Track metrics such as tax‑to‑GDP ratio, current‑account balance, and external debt composition to gauge the sustainability of the debt trajectory.
For Citizens
1. Stay Informed: Understand how currency movements affect public debt and, ultimately, social spending.
2. Engage in Governance: Participate in public consultations and hold elected officials accountable for debt‑management policies.
Frequently Asked Questions
What caused the GH¢70bn increase in Ghana’s debt?
The surge resulted primarily from a 20 % depreciation of the cedi, which raised the local‑currency value of foreign‑denominated liabilities, and from the accounting treatment of previously restructured debt that was re‑classified as new disbursements.
How does debt restructuring affect the public debt figure?
When restructuring merely extends maturities without reducing principal, it can be recorded as a new disbursement, thereby increasing the reported debt stock even though no fresh borrowing occurred.
Is the debt surge reversible?
Yes, if the cedi stabilises and fiscal reforms reduce the primary deficit, the debt‑to‑GDP ratio can be brought down over time. However, reversal requires sustained policy discipline and structural reforms.
What policy reforms are needed to address the underlying weaknesses?
Key reforms include improving tax collection, diversifying the revenue base, enhancing public‑financial management, and establishing fiscal buffers that can absorb external shocks.
Conclusion
The GH¢70bn debt bounce serves as a stark illustration that headline debt figures can mask deeper vulnerabilities. While temporary exchange‑rate effects and accounting decisions have driven the recent increase, the fundamental structural weaknesses in Ghana’s economic system remain unresolved. Addressing these challenges will require transparent fiscal accounting, decisive fiscal consolidation, and a clear strategy for revenue diversification. Only through such measures can Ghana build a more resilient financial foundation and avoid repeated cycles of debt surges that undermine long‑term growth.
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