The latest Fiscal Monitor report by the International Monetary Fund (IMF) has warned government it risks sliding into a debt crisis if non-concessional borrowing like Eurobonds are not invested into profitable projects that enhance repayment capacity.

The report was launched yesterday in Washington, DC, and said Ghana – just like a number of countries in sub-Saharan Africa which have taken to the Eurobond market to finance their deficit – faces some debt vulnerability risk.

“Continued reliance on non-concessional financing in many countries (Co?te d’Ivoire, Ethiopia, Ghana, Kenya, Senegal) could add to their debt vulnerability if the proceeds are not properly managed to generate growth and repayment capacity,” the latest Fiscal Monitor report warned.

Having made its debut in the Eurobond market in 2007, Ghana has since been to the market seven times – with the latest a US$3bn bond sold in three parts with average maturities of seven, 12 and 31 years.

While the Finance Minister, Ken Ofori-Atta, has said the US$2billion from the latest bond will be used to finance some infrastructure projects, using the rest of the funds to retire maturing debts adds to a huge chunk of previous Eurobonds spent to refinance debts.

According to the 2019 budget, in which government first announced plans to raise US$3billion from the international capital markets, about US$2billion will be used to execute this year’s budget while the remaining US$1billion is used to refinance the 2023, 2026 and 2030 Eurobonds.

The latest edition of the Fiscal Monitor said, already, the clean-up of the banking sector has had implications on the country’s total debt stock – increasing it by 3.5% of GDP, and thus the investment of borrowed funds must be put into areas that can stimulate growth and generate enough revenue.



Reforms

The report also said ongoing public financial management reforms could provide some avenues for countries like Ghana to increase their resource envelope through enhanced efficiency gains, as wastage is brought to the minimum.

Over the past two years, revenue shortfall has prompted expenditure cuts among other measures; and the IMF Fiscal Monitor predicts that other enhanced public financial management actions will ensure that the little resources that come in are put to effective use.

“Reducing off-budget activities (for instance in China and Ghana) could improve the monitoring of debt levels and fiscal risks, lead to more prudent debt strategies, and promote transparency,” the Fiscal Monitor said.

The Fiscal Monitor surveys and analyses the latest public finance developments. It updates fiscal implications of crisis and medium-term fiscal projections, and assesses policies to put public finances on a sustainable footing.

Speaking at the press briefing after the report’s launch, Victor Gaspar-Director of IMF Fiscal Affairs Department, said with global growth slowing and uncertainty rising, fiscal policy should prepare for possible downturns – balancing growth and sustainability objectives – while also putting more emphasis on reforms to adapt to a fast-changing global economy.

“To foster higher and more inclusive growth, fiscal policy should adapt to key trends reshaping the global economy. Shifting demographics, rapid technological progress, and rising global economic integration bring structural challenges,” he added.