Ghana’s Debt Crisis

Ghana’s public debt has been galloping at a manic pace.

But is at HIPC-unsustainable levels or not? Seems like a simple enough question. One only needs to check back on the thresholds used to qualify countries for the HIPC initiative when it was in vogue in 2000, compare them to our current situation, and bingo: point made!

In that light, critics of the government point out to it that in 2006 Ghana’s public debt to GDP ratio was 26%, while today it is at 68% (a more than 250% jump).

The government’s supporters counter that this is still no where near the 110% ratio that in 2000 necessitated that we join the ignominious club.

Critics riposte that the effects of rebasing need to be taken into account, as well as the massive expansion of new sectors such as petroleum and telecommunications, which if properly factored into the mix should prove that things are more dangerous now than in 2000.

But all this is missing the point really.

The HIPC formula rests more solidly on two other ratios than it does on debt-to-GDP.

These are: debt-to-exports and debt – to – government revenues, since these ratios are considered more critical to servicing the debt burden than the more popularly used debt-to-GDP one.

If you look at our current official debt of about $20 billion and compare it to our falling exports of $13 billion, you get a percentage ratio of 154%. Comparing our debt to government revenues, totalling about $8 billion as per the last budget, on the other hand, yields a percentage ratio of 250%.

The original HIPC thresholds for these ratios were “between 200% to 250%”.

This means simply that on one critical ratio (debt-to-exports) at least we wouldn’t have qualified for HIPC if we were applying today. But on the basis of another, equally critical, ratio (debt-to-revenues) we would have.

You might say this is an ambiguous result, but what is more bizarre is that by official reckoning public debt is falling in current dollar terms. By end 2013, total public debt was in excess of $22 billion. By every other measure, apart from official statistics that is, we should be seeing an increase in the debt both in current and constant prices. Yet we are being told that in nominal terms we’re not.

So, as they say, the devil is in the detail.

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