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Ghana debt payments on the rise

Payments could reach 30 per cent of government revenue in 2020s.

Independence Square, Ghana (Credit: CC Chapman)

Independence Square, Ghana (Credit: CC Chapman)

Ghana has recently been judged by the IMF and World Bank to be at moderate risk of not being able to pay debts. The government’s foreign debt fell from $6 billion in 2005 (over 60 per cent of GDP) to $2 billion in 2006 (10 per cent of GDP), after qualifying for some debt cancellation in 2004 and 2005. Despite a booming economy, the debt has increased rapidly to $10 billion in 2013 (23 per cent of GDP).

The biggest concern over Ghana’s debt is the cost of its debt payments. Assuming economic growth of 5-8 per cent a year, annual foreign debt payments are still projected to reach 15 per cent of government revenue by 2020 and over 20 per cent by the mid-2020s. In the event of one economic shock, debt payments are projected to be as high as 30 per cent of government revenue by the mid-2020s, well above the relative level of payments in the period before Ghana qualified for debt cancellation. The IMF claims that governments historically begin to default on debt payments once they reach the range of 20-30 per cent of revenue.

Once again, the biggest group of lenders to Ghana have been multilateral institutions, with 40 per cent of foreign loans between 2006 and 2011. Most of this is lending by the IMF and World Bank, which by themselves are responsible for 35 per cent of lending to the West African country. Private lenders were responsible for 34 per cent of loans, and foreign governments 27 per cent. Private lenders are predicted to be a much larger source of loans in coming years.


Countries

Ghana
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