Ghana slips out of debt crisis
Between 1990 and 2001 the external debt of developing countries increased from US$1.4 trillion to US$2.3 trillion. The total external debt of Argentina alone more than doubled to US$137bn by the close of 2001.
In Africa, the external debt servicing as a percentage of exports of goods and services was above 30% for countries in sub-Saharan Africa. Debt servicing as a percentage of exports, however, dropped to 9% in 2001 (sub-Sahara) for some
countries, per full year. There must also be a continued macroeconomic
stability, which Ghana achieved and subsequentlyqualified to reach the HIPC completion point.
Real HIPC dividends are manifest in the outcome of the
completion point, opined Hon. Yaw Osafo-Maafo, the Finance
Minister, who is growing more comfortable with the HIPC deal.
For example, there has been a reduced pressure on the country’s
foreign currency resources as a result of reduced external debt
servicing. Prior to this, the nation’s
actual external debt servicing
was US$392m (about ¢3.5 trillion) annually; from 1998 to 2000
this dropped to US$149m (¢1.3 trillion).
Ghana is expected to retain more than US$268.5 million in
2004 alone. Over the next 20 years, this figure will rise to an
estimated US$1.15bn windfall.
Secondly, the adoption of appropriate economic policies
designed to facilitate poverty reduction has stimulated economic
growth. Consequently, headline inflation dropped from 41% in
December 2000 to 11.2% in May 2004. The banking sector has
responded by reducing its lending rates to improve the general
business environment and create a stable economy for both
micro and small-scale operators to enhance operations.
Thirdly, the country is currently witnessing a positive impact
on the balance of payments, with gross foreign reserves shooting
to US$1.4bn (almost four months of imports cover). This feat
is considered the highest over the last few decades. Finally,
HIPC programme has enhanced accountability and improved
the level of transparency while at the same time, fostering closer
relations with creditors and donors globally.
Ghana’s sovereign credit rating currently stands at B+ outlook,
which can be seen as a result of good governance practices
that are eventually yielding economic rewards and positive
gestures reflected in multiple debt relief from nations across the
HIPC relief: a boost for social infrastructure
Since Ghana opted for the HIPC debt relief initiative in March
2001 and reached decision point in February 2002, it has received
a total of about ¢2,210.97 billion as at end of June 2004.
Out of this, Government has disbursed a total of ¢1,117.63bn
from the HIPC Account to support poverty-related spending bythe Ministries, Departments and Agencies (MDAs), Metropolitan,
Municipal and District Assemblies.
For the first half of 2004, a total amount of about
was spent to improve education and health services delivery,
speed up rural electrification, enhance rural agriculture, feeder
roads construction and rehabilitation, rural water and sanitation
among others. The sector recently received over ¢30bn to
support the construction of lecture halls, hostels for students
and bungalow for lecturers for three universities – University of
Ghana, Kwame Nkrumah University of Science & Technology
and University of Cape Coast.
An amount of ¢96.3bn was released to upgrade senior
secondary schools in selected districts in all ten regions. This
support was provided to improve teaching and basic teaching
facilities in community secondary schools. Again, more than
¢60bn was released to provide support to farmer groups during
the major farming season to boost food production. Furthermore,
the roads ministry received ¢40bn this year for the feeder
roads programme to improve access to rural market and
The Ministry of Health was also given an amount of ¢59.5bn
to support the expansion of 21 health training schools, rehabilitate
health centers and provide basic equipment for the regional
capitals and support for 22 districts under the health insurance
schemes. This will help increase geographical and financial access
to basic health services in the country. It will also enable the
aged, low-income and poor to be assisted to access the health
insurance scheme in the district and to make it possible for residents
to access health services nationwide.
Government provided an additional amount of ¢95.33bn to
Local Government for the support of various projects in the
Metropolitan, Municipal and District Assemblies.
Ghana enjoys low-debt-tide
Government, as a matter of policy and strategy, utilises 20% of
the HIPC funds to reduce Ghana’s domestic debt. This partly
contributed to the reduction in the outstanding stock
securities from ¢13,909.4bn in 2002 to ¢13,591.2m in
In fact, domestic debt as a percentage of GDP has dropped
from 28.0% in 2000 to 17.0% in 2004. As the process of domestic
debt reduction goes on, domestic interest rates would
continue to decline and the private sector can access credit at
low cost to spearhead job expansion, employment creation and
Ghana now out of debt crisis
On reaching the completion point in July 2004:
• Ghana’s creditors commited irrevocably to deliver debt relief
• Paris Club creditors provided up to 100% debt stock cancellation
on all pre-cut-off date loans, and where possible, post
cut-off date loans. Ghana’s stock has been reduced by approximately
US$1.6bn in nominal terms as a result of stock cancellation
from Paris Club creditors, of which Japan is expected to
provide about US$880m, Germany US$240m, UK US$140m.
• The country is also due for
comparable treatment from our
Non-Paris Club creditors and commercial creditors. China will
also cancel additional loans.
• Multilateral creditors, on the other hand, will continue to
provide the debt reduction they started at the decision point.
Total relief to be provided by the World Bank alone is about
US$1.45bn, African Development Bank US$160m and IMF
US$112m in NPV (net present value) terms.
• Ghana would save approximately $230m annually in debt
service costs over the next 20 years. In line with the significant
debt reduction, the debt service-to-exports and debt servicesto-
revenue ratios will average 4.7 and 6.2% respectively over the
next 20 years. These compare favourably with the 10-year aver-age pre-HIPC debt service levels of 21 and 30% respectively.
• In sum, total debt relief from all of Ghana’s creditors
amounts to US$4.5bn in nominal terms. This relief is equivalent
to a reduction in net present value terms of US$2.2bn as
at the decision point.
In response to the gesture exhibited by the IMF and the Bank,
the Paris Club of creditors has also announced a cancellation of
Ghana’s debt by US$1.6bn. With this gesture, Ghana only owes
US$300m to the Paris Club.
Ghana’s debt management has gained centre stage within
the sub-region as its success story is now serving as a motivation
for some bigger economies to also opt for the initiative. It
is however hoped that the government will abide by the GPRS
framework to set its development agenda right and bright for
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