This report seeks to highlight trends in key debt management measures for a selected number of African countries with debt management problems (Central African Republic, Chad, Ghana, Mozambique, Senegal and Zambia). Extra analysis on Ghana is presented. The question of whether certain African countries would be able to meet their debt obligations without resorting to default in the foreseeable future has been on the minds of many stakeholders. Public debt sustainability has become an issue recently because some countries who received aid under HIPC are again accumulating unsustainable debt. Between 1980 and 1995, that is before HIPC, the average growth rate was about 2 percent and rose to about 6 percent after HIPC (1996 to 2017) for the six selected countries. Proper debt management and debt relief partly account for better economic performance.

Based on the growth prospects, another round of borrowing has been intensified. The debt/GDP ratio and external debt service over exports ratio have been rising for this group of countries. Another worrying trend is the rise in interest payments on external debt. The share of concessional loans increased throughout the 1980s, 1990s and early 2000s to an average of about 76 percent in 2005 but has since been falling to an average of 47 percent in 2017.  The implication is that these countries are increasingly borrowing from the open market instead of borrowing from traditional donors, who are known to insist on due diligence and prudent financial behaviour before disbursements are made. This serves as a check on sustainable debt accumulation.

After rebasing the economy of Ghana in 2013, the debt/GDP ratio fell from 73.9 percent in 2016 to 57.9 percent in 2018. Projections by the World Bank shows that the debt/GDP ratio would soon be higher than the benchmark of 56 percent for Ghana and higher than the 70 percent specified by the WAEMU. The consequence is that about 86 percent of interest and charges payments were made to commercial sources in 2017, while only 6 percent and 8 percent were paid to bilateral and multilateral sources respectively. The MOFEP has budgeted to pay about 88 percent to commercial sources in 2018. Another observation is that the share of the domestic debt owed to the local banking system has fallen from 52.5 percent in 2014 to 35.4 percent in 2017. The share of the foreign sector increased from 17.1 percent in 2014 to 38.4 percent in 2017, but down to 30 percent in 2018. This makes the public finance venerable to exchange rate shocks when investors decide to take their funds out of the economy. 

What makes the situation more disturbing is the relatively lower revenue mobilization in Ghana as compared to countries in SSA. Projections for external debt service to revenue for Ghana from 2017 to 2022 are far above the threshold of 20 percent. From around 20 percent in 2005, debt service has been above 40 percent of domestic revenue for 2016 and 2017. Interest payments constituted 45 percent of tax revenue in 2016 for Ghana. This seriously affects funds available for capital expenditure and other important expenditures.

Growth prospects for Ghana appear good. The real GDP growth for 2017 was 8.1 percent, from 3.4 percent in 2016. Provisional estimates for 2018 show a growth rate of 6.3 percent. Fiscal deficit improved from 6.5 percent in 2016 to 4.8 percent in 2017. Interest rates on domestic government securities have fallen because of debt restructuring. The fiscal deficit is planned to have been capped at 5 percent of GDP. The oversubscription of Ghana’s Eurobond sales on the international market appears to have worsened the overconfidence of the executive. Borrowing continues even though the public debt in Ghana is exposed to exchange rates risk. Expenditures appear more than warranted and likely to worsen the debt problem.

To throw more light on the loan contraction process, a loan of 13 million euros that has been contracted to establish a deposit insurance scheme based on international best practice is reviewed. The objective is to reduce government contingency payments in the event of a bank failure and increase trust in the banking system. The loan was approved by Cabinet around late 2017 and by parliament in early 2018. Thus, the contraction process involved the right institutions in Ghana.

A description of the loans contracted in 2017 and 2018 is provided in this report. A total of 10 external loans were contracted in 2017 and 24 in 2018. About 77.9 percent of the loans in 2017 was non-concessionary and 19.7 percent was concessionary, in addition to a 2.4 percent domestic standard loans. Non-concessionary loans in 2018 represented about 87 percent. The interest rates and rates for other charges are lower for concessionary than for non-concessionary loans. More than half of the loans were contracted from the World Bank. About a quarter of the loan amount in 2017 and 2018 went to the Ministry of Roads and Highways and the Ministry of Transport. About one-fifth of the total amount of loans financed projects by the Ministry of Finance and about 15 percent went to the Ministry of Education.

For sustainability reasons and given the current low domestic tax revenue mobilization, the executive should consider scaling back public expenditures and creating the conditions for the private sector to increase production to avoid a reduction in the growth of the economy. The monitoring capacity of public officials should be improved to monitor public projects. Traditional development partners still need to be engaged to maximize concessional loans as much as possible. More efforts should be made to increase domestic revenue mobilization by streamlining processes and encouraging more digitization of public services. Regular progress reports on public projects should be demanded by parliament. Civil society organisations should ignite discussions on the dangers of pursuing commercial loans and engage the executive about the dangers of over-borrowing.


Debt Management

Domestic Resource Mobilization

International Public Finance

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