Deloitte tells govt to direct portions of additional loans into productive & self-financing projects

The external debt restructuring undertaken by the government has resulted in debt relief of USD4.4 billion and debt cancellation of USD4.7 billion over the course of the International Monetary Fund (IMF) programme, accounting and auditing firm Deloitte has said.

This is expected to slowdown the extent of debt accumulation and the rise in Ghana’s debt to GDP ratio, assuming the economy continues to expand, Deloitte stated.

Ghana has targeted a debt to Gross Domestic Product (GDP) ratio of 55% by end of 2028.

However, Deloitte says the resumption of debt service commitment post-IMF presents some risk to this target.

Domestic debt grew by 12.7% from GHS257.3 billion to GHS289.9 billion due to the continuous disbursements from creditors.

External debt also increased by 28.7% from GHS350.9 billion to GHS451.9 billion as a result of the sharp depreciation of the Ghana cedi.

Deloitte recommended in its assessment of the 2024 mid-year budget review that “Given that the debt will most likely continue to increase overtime, the most feasible option for achieving the optimal debt to GDP ratio is to direct increasing portions of additional loans into productive and self-financing capital expenditure to expand the economy whilst generating inflows to pay down these loans.”

As Ghana heads into a major election on December 7 this year, the firm further cautioned the government of Ghana against overspending.

Deloitte says spending beyond the limit could pose a severe threat to the downward trend in inflation and also the improved currency depreciation.

Headline inflation declined to 22.8% in June 2024 from 23.2% in January 2023, per figures churned out by the Ghana Statistical Service (GSS).

The downward trend in inflation in 2024 has been largely driven by decrease in non-food inflation, tightening monetary policy, ongoing fiscal consolidation by the government, low volatility of transport fares due to stable crude oil prices, and some base drift effect from previous price increases.

Deloitte indicated that the downward trend recorded in the year-to-date depreciation and inflation further affirms the view that Ghana’s economic recovery process is on track.

This notwithstanding, it said, the upcoming elections and its potential for increased Government expenditure beyond targeted levels, as well as the recurrent increase demand for dollars ahead of Christmas festivities in the last quarter of the year present risk to the improved currency depreciation and inflation recorded so far.

“Having highlighted the risk to maintaining the positive trajectory noted above, it is important to note that the IMF Programme, whilst serving as a check on Government’s expenditure also provides opportunity to boost Ghana’s foreign reserves.

“This, together with other inflows expected from the World Bank Development Policy Operation (DPO) might help absorb some of the FX shocks associated with the December festivities,” it said.

 

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