IMF: Ghana must reduce debt service costs
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IMF: Ghana must reduce debt service costs

IMF: Ghana must reduce debt service costs

17 May 2021

Ghana will need to focus on deeper fiscal efforts to help reduce debt costs, which increased due to Covid-19 support measures, an International Monetary Fund chief said.

The West African nation dealt with the Covid-19 pandemic well, limiting infections to 93,000, and implementing a successful vaccination programme, according to Carlo Sdralevich, IMF division chief for Ghana.

However, he said that government interventions last year exacerbated pre-existing debt vulnerabilities, as government deficit reached 15.5% of GDP, while debt financing needs exceeded 20% of GDP.

Sdralevich said: “The 2021 budget’s recent policy pivot towards fiscal consolidation is an important step in the right direction and a difficult one in a pandemic.

“Fiscal consolidation should be deepened and anchored around debt and debt service reduction to create space for social, health, and development spending.

“Given the social and equity implications, fiscal consolidation should rely more on progressive revenue and spending measures, while guaranteeing fiscal support to the most vulnerable and social safety nets.”

Pandemic-related support led to a 14-percentage point rise in overall government debt, up to 78% of GDP in 2020 from 64.4% in 2019, Sdralevich added.

The nation’s pandemic response allowed it to avoid an economic contraction last year, as growth slowed to 0.4%, following an increase of 6.5% in 2019.

This was fuelled by a lower activity in the extractive industries and a collapse in hospitality and retail services, Sdralevich said.

GDP is forecast to grow by 4.8% this year, with inflation to remain at 8% around the central bank’s target, after food price rises saw the rate dip into double digits last year, Sdralevich added.

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