Ghana: Debt repayments greater than health or education spending

In depth
This article is part of the dossier: Corona Chronicles: 25 May – 29 May
Kurt Davis Jr.
By Kurt Davis Jr.
Investment banker

Kurt Davis Jr. is an investment banker and a member of the Council on Foreign Relations. He earned a M.B.A. in finance, entrepreneurship, and operations from the University of Chicago Booth School of Business and a J.D. in tax law and commercial law from the University of Virginia School of Law. He can be reached at

Posted on Friday, 29 May 2020 17:52, updated on Sunday, 31 May 2020 21:47

The spread of the coronavirus disease (COVID-19), in Accra
A taxi driver wears face mask at the Nima market, as Ghana lifts partial lockdown amid the spread of the coronavirus disease (COVID-19), in Accra, Ghana April 20, 2020. REUTERS/Francis Kokoroko

Ghana was the first sub-Saharan African country to ease restrictions when it lifted lockdown measures on 20 April. The country’s Minister of Finance Ken Ofori-Atta argued the 21-day lockdown of Ghana’s biggest cities had become financially unbearable for most of the population, a concern that gave the government little choice but to lift the restriction.

The country, which identified its first COVID-19 cases on 12 March, has seen the numbers since then rise more than six-fold to 7,000-plus  including those since the lockdown was lifted. The death toll, however, remains relatively low at 34.

READ MORE Coronavirus: Is Ghana winning the fight against the pandemic?

The reality is Ghana ranks in the top five African countries for testing rate per citizen.

And the lockdown clearly brought the economy to its knees with several years of economic growth of 6% or more being wiped out by people sitting at home, including, as Minister Ofori-Atta described it, a significant portion of the nearly 90% of the population that work in the informal part of the economy and go to work each day to earn wages.

Therefore lifting the lockdown and jump-starting the Ghanaian economy should be the end of this saga. But the saga extends beyond COVID-19 and a cooling economy…

Economic fallout

The International Monetary Fund provided $1bn in emergency funds to Ghana in April.

The World Bank also agreed to a debt standstill with the country  that is estimated to free up approximately $500m in the short term through deferred interest and principal payments.

These two measures, however, are not enough, to curb the growing chatter among creditors, multilaterals, and governments that Ghana is increasingly at risk of an unexpected (and big) economic fallout.

A group of private creditors to sub-Saharan African sovereigns recently created a platform to directly engage governments in dialogue on debt-related matters.

The structure, called the Africa Private Creditor Working Group (AfricaPCWG), includes more than 25 members that are understood to hold between 30% and 75% of the more prominent African Eurobond issuers, including Angola, Egypt, Cote d’Ivoire, Ghana and Nigeria.

READ MORE Post-coronavirus: More sorrow for Africa’s new oil and gas producers

The backdrop to the working group is a narrative of uncontrollable debts during an unforeseen pandemic.

Zambia has already requested proposals for potential debt restructuring with other countries, such as Rwanda, openly stating a need to defer debt payments or renegotiate terms.

A working group within the African Union is considering the creation of a special purpose vehicle to be guaranteed by member states to support and theoretically financially backstop some governments in the short term.

This SPV or another form of credit enhancement is assumed crucial to circumventing future credit rating downgrades due to potential missed payments or requests to re-profile debt payments. Any downgrade or potential sell-off in African debt would also push up borrowing costs for African countries.

READ MORE Africa needs debt relief to fight COVID-19

Such an outcome for Ghana, which would include other governments and/or multilateral parties guaranteeing its debt, would create both an economic and political catastrophe for the country. The deterioration of the country’s supply and distribution chains in the short term due to this pandemic is seemingly digestible or, at least, understandable for the Ghanaian public.

Elections this year

Ghanaians will go to the polls later this year where President Nana Akufo-Addo will battle his predecessor John Mahama. The election will create a theoretical ‘Battle of the Records’ where former President Mahama will be claiming his economic performance was under-appreciated, particularly when pitted against the current economy of President Akufo-Addo.

The strategy, if employed, makes sense as lagging commodity prices drag down the economy coupled with the destabilzing effects of a global pandemic.

That said, this version of the economic discussion unfairly distills recent economic effects based on simplified analysis of what are greater challenges in the country.

  • Firstly, the growth over the past few years has not necessarily changed the daily lives of many Ghanaians. As a significant portion of the country’s populace makes a living through daily informal work, the lack of a strong currency over the years has hit many locals in the pocket while fuel and food prices have floated up and the government has focused on tightening its public spending.
  • Secondly, the costs of governing Ghana remain an issue of contention with the public. Locals have grappled with the number of government ministers and their accompanying teams. Beyond those costs, the coordination of a national election has always drawn post-election scorn from the incoming party with allegation of flagrant spending for political gain and victory.
  • Thirdly, economic growth has not necessarily changed the outlook for the country. A bigger economy does not magically generate more revenue, particularly considering spending related to various sectors. For example, government spending currently buoys the electricity sector through its period of transition as the Electricity Company of Ghana (ECG) and Volta River Authority (VRA) struggle to collect fees and the government tries to renegotiate contracts with independent power producers (IPPS) in order to right-size off-take and fees to today’s situation in the country. Furthermore, the improved oil sector in the country has been short-circuited by low oil prices – albeit nowhere at the same level as Nigeria.

READ MORE: Nigeria VS Coronavirus: Cutting naira’s umbilical dependence on oil

Taxing the informal economy remains a daunting challenge for Ghana as with most other African governments. Efforts to broaden the tax base accordingly has generally been fruitless for recent administrations.

According to the IMF, taxes account for a smaller share of GDP for Ghana compared to other developing countries with Ghana remaining at “high risk of debt distress” for another consecutive year. More distressing, interest payments eat into approximately one-third of the government revenues, which is more than education or healthcare.

Today and beyond for Ghana

The question for Ghana today should go beyond a pure comparison of economic performance between presidents. Ghana rightfully remains one of Africa’s most promising economies. It has benefited from oil discoveries in recent years yet still has worked hard to diversify the larger economy.

Elections have been fluid with successive transitions between administrations, making the country a beacon of political stability in Africa. That said, as any debtor will tell you: creditors love and respect you until you miss a payment (default) or others start saying you are not good for your payment (credit downgrade).

Ghana can (and should) avoid both scenarios. The first step may be simply changing debits and credits by changing lifestyle and spending habits. But as is often the case, that is easier said than done.

Understand Africa's tomorrow... today

We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.

View subscription options
Also in this in Depth:

Coronavirus: South Africa’s unions fight for essential workers’ safety 

As South Africa prepares for level 3 lockdown, unions are working around the clock to ensure companies comply with safety standards and regulations.

Post-coronavirus: More sorrow for Africa’s new oil and gas producers

The crash in oil and gas prices, triggered by the coronavirus pandemic and the slump in economic activity, has dealt a blow to the plans and public finances of major oil- and gas-producing countries. But a group of countries in sub-Saharan Africa once designated as “prospective producers” are facing a different challenge.

Coronavirus: Namibia praised for containing the virus

The Republic of Namibia has been praised for its containment of the spread of the coronavirus. Its index case came mid-March, but for 45 days (7 April to 21 May) no new cases were recorded.

Call to graduates during coronavirus: ‘Don’t forget how you stayed connected’

As we graduate from Harvard amidst the pandemic, we reflect on the juxtaposition of our relative privilege with the systematic marginalization of the artisanal miners in the Democratic Republic of Congo. As we go into the real world, we have to recognize the contribution of their labour to our education and commit to improving their lives.

Nigeria VS Coronavirus: Gas could be saving grace over crashing oil

In the fourth story of our series on the impact of COVID-19 on Nigeria's economy, we look at why the country's neglected gas reserves need to form part of the energy reforms.

Coronavirus: Nigeria’s informal economy hit hard

Nigeria’s informal economy has grown considerably over the last decade.

Coronavirus: ‘People’s vaccine’ campaigners claim victory at WHO summit

The campaign for a vaccine against the cororonavirus to be recognised as a global public good – patent-free, produced at scale and internationally available  – is making headway. But progress is complicated by geopolitical rivalries between China and the United States as well as business interests.

Coronavirus: Reforms by Angola’s Lourenço helped mitigate effects of COVID-19

Big oil-producing countries have faced a double-hit in recent months: the sudden drop in prices of oil and the economic impact of the global pandemic. In the case of Angola, which entered both crises with an already weakened economy, how are its prospects looking? The Africa Report speaks to Sergio Pugliese, the Executive President for the African Energy Chamber (AEC), to find out.

Coronavirus: How is Egypt navigating the economic fallout?

The ravages caused by the coronavirus have equalised the playing field across the globe: not one country will come out of this untouched. But as states learn to live with this new reality, they must also create policies to minimise the economic impact this crisis will undoubtedly bring.