Today in History: World Bank cautions Ghana over excessive borrowing

The World bank in 2020 said Ghana stood at risk of being classified as a high debt distress country if it does not stop its excessive borrowing.

The International Monetary Fund also warned that Ghana had a high risk of becoming high debt distress country if its borrowing persists.

The international bodies raised concerns regarding the usage of the borrowed funds mainly for consumption rather than capital projects or investments.

Country Director of World Bank, Pierre Frank Laporte speaking to the media said, “Countries especially developing countries have to borrow because most of us do not have adequate resources, we have to borrow to develop but we have to borrow responsibly. At the moment, Ghana’s debt situation according to World Bank description is a country at moderate rate to high risk of debt distress; of course, yes, the country has to be careful”.

Read the full story originally published on February 7, 2020 by Classfm

The World Bank has cautioned Ghana against excessive borrowing amidst concerns that the country risks being classified as high debt distress country if the situation persists.

This comes a day after the country successfully raised US$3 billion Eurobond which was five times oversubscribed.

The International Monetary Fund has also warned the nation that it is at a high risk of becoming a debt-distressed country.

According to the Fund, the Debt Sustainability Analysis is mainly driven by debt service to revenue exceeding the threshold throughout the forecast horizon, though all other indicators also exceed their threshold at some point over the horizon.

Concerns have also been raised regarding the borrowed funds being used mainly for consumption rather than capital projects or investments.

Speaking to the media after a courtesy call on the Speaker of Parliament, the Country Director of World Bank, Pierre Frank Laporte said though every country will have to borrow it must be cautious of the quantum of borrowing.

“Countries especially developing countries have to borrow because most of us do not have adequate resources, we have to borrow to develop but we have to borrow responsibly. At the moment, Ghana’s debt situation according to World Bank description is a country at moderate rate to high risk of debt distress; of course, yes the country has to be careful”, said Mr. Laporte.

He added that : “I’m confident the Finance Minister and his team are fully aware of that, we discussed all the time and borrowing as I said is not always a bad thing but you must borrow at the right terms, as best as most favorable as possible and the right amount and the right way.”

He however applauded the country for the economic progress made over the last couple of years, but added there are important challenges that the nation needs to address.

Ghana’s total public debt stock increased by GHS6.3 billion between September and November 2019 to reach GHS214.9 billion in November 2019.

Of the total debt stock, domestic debt was GHS101.4 billion, of which GHS11.2 billion (3.8 per cent of GDP) represented bonds issued to support the financial sector clean-up.

In 2019, interest payments on loans were expected to be GHS19.756 billion. Out of this, GHS4.60 billion was spent on the external debt while GHS15.156 billion was used to service loans contracted from the domestic market.