Ghana’s external debt-to-GDP ratio reached approximately 39.5% in 2022 positioning it as the sixth highest among African nations, says the African Development Bank (AfDB).
The alarming data revealed in the African Development Bank’s 2023 West Africa Economic Outlook Report underscores the nation’s predicament, as this debt ratio surpasses the regional average of 29.6%.
The close of 2022 saw Ghana’s external debt soar to a staggering $29.0 billion, distinguishing the country from its peers within the Economic Community of West African States (ECOWAS) as the sole nation classified as debt distress.
Notably, the surge in external debt stems largely from the burgeoning issuance of Eurobonds, the report details.
This trend in Eurobond issuance, observed since 2011 in countries such as Côte d’Ivoire, Ghana, Nigeria, Senegal, and more recently Benin, has amplified external debt dynamics in the region.
However, this financial maneuver exposes these nations to potential risks stemming from exchange rate depreciation and the ongoing global normalization of monetary policy.
“In West Africa, external debt accounts for the largest proportion of the total public debt portfolio in most countries except Nigeria and Togo.
External debt increased from an average of 13.8% of GDP in 2014 to 29.6% in 2022. External debt accumulation was facilitated by a rise in the issuance of Eurobonds. Eurobonds have been issued by Côte d’Ivoire, Ghana, Nigeria, and Senegal since 2011, and by Benin since 2019”, the report mentioned.
Delving deeper, the report underscores key drivers that fuel the external debt dynamics in the West African landscape.
Rapid exchange rate depreciation, particularly acutely felt by commodity-exporting nations, coupled with high primary fiscal deficits and the economic repercussions of the COVID-19 pandemic in 2020, along with Russia’s 2022 invasion of Ukraine, have collectively contributed to the present high debt levels in the West African sub-region.
Furthermore, the tightening of monetary policy in advanced economies, culminating in elevated nominal interest rates, has further compounded the debt burden in the region.
While Ghana’s high debt burden is undoubtedly a significant factor in its economic challenges, it is essential to recognize that these challenges stem from an intricate interplay of multifaceted issues.
As the region endeavors to restore stability and growth, efforts to harness domestic resources, consolidate fiscal policies, and exercise spending restraint, offer hope of mitigating the excessive external debt accumulation.