A 50% depreciation of the cedi against the US dollar since 2013, as well as the fall in commodity prices, has increased Ghana’s projected external debt payments of both interest and principal from $900 million to $2.5 billion this year.

These two factors have added $1.6 billion to the projected external debt payments in three years.

This means external debt payments are now projected to be 30.2% of government revenue in 2016, far and above the 7.4% projected three years ago.

The main reason for these changes is that the fall in exchange rates and commodity prices means governments are receiving fewer dollars than had been expected.

In addition, governments are collecting less tax revenue as a proportion of Gross Domestic Products (GDP) than expected, and external debt payments are also higher.

Poor management of the cedi and failure to diversify exports can be blamed for this situation.

Increase in debt payments

Devaluation causes the relative size of debt payments to increase, because taxes are collected primarily in cedi, but debts are paid in foreign currencies.

The fall in government revenue in dollars is, therefore, a main reason why the relative size of debt payments is higher than predicted a few years ago.

New Jubilee Debt Campaign report

Jubilee Debt Campaign, the group that spearheaded debt relief, which resulted in Heavily Indebted Poor Countries (HIPC) Initiative for poor countries, made this known in a new report.

The report covered 18 low-income and some lower middle-income countries across the world, including Ghana.

According to the report, in 2013, the International Monetary Fund (IMF) and World Bank forecasted that Ghana’s external debt payments in 2016 would be $900 million, which represents 7.4% of government revenue.

The projected increase from $900 million to $2.5 billion means external debt payments are now projected to be 30.2% of government revenue in 2016.

It had been forecast three years ago that government revenue would be $12.6 billion in 2016, but now it is only expected to be $8.2 billion.

Jubilee Debt Campaign calculated the figures by comparing IMF and World Bank predictions from 2013 with those conducted between August and December 2015, since the most recent falls in commodity prices and exchange rates.

It shows a real burden the government is experiencing from debt.

$3 Billion drop in export revenue in 3 years

Gold, cocoa and crude oil constitute 80% of Ghana’s exports and, therefore, the price shocks have had a significant effect on the country’s reserves and accelerated volatility in some cases.

Ghana has lost more than $3 billion in revenues as a result of a fall in commodity prices on the world market.

For example, between 2012 and 2015, gold price shocks have led to a loss of more than $2 billion in revenue while shocks in cocoa prices have resulted in more than $1 billion in revenue.

Jubilee Debt Campaign calculations

The IMF and World Bank conduct Debt Sustainability Assessments for low-income and some lower middle-income countries.

They predicted Gross Domestic Product (GDP), government revenue and debt payments into the future.

Eighteen countries have had such assessments since August 2015.

Jubilee Debt Campaign compared the figures in these assessments with those conducted for the same countries in 2012 or 2013, whichever was available.
This found that across the 18 countries, external debt service is now predicted to be on average 10.8% in 2016 and 9.7% in 2017.

It had previously been predicted to be 6.1% in 2016 and 6% in 2017.

The calculation also predicted government revenue across the 18 countries is down by $19.5 billion in 2016 and $17.3 billion in 2017, falls of 20.1% in 2017 and 17.8% in 2017.

According to Jubilee Debt Campaign, external government debt payments across the 18 countries are up by $3.5 billion in 2016 and $2.7 billion in 2017, increases on what was previously expected of 74.4% in 2016 and 45.3% in 2017.

Across the 18 countries, they are collectively $23 billion worse off in 2016 and $20 billion worse off in 2017.

Jubilee Debt Campaign then used the average changes and applied these to other low- and lower middle-income countries with predictions in 2012 and 2013, a further 33 countries.

If the average changes are replicated for these countries, then government revenue will be down by a further $34.1 billion in 2016, and debt payments up by $3.9 billion, a $38 billion loss in total.

This, added to the $23 billion, makes a total loss in 2016 of $61 billion. The equivalent figure for 2017 is $53 billion.

$61 billion loss for impoverished countries

Impoverished country governments could be up to $61 billion worse off in 2016 as a result of the crash in global commodity prices and strengthening of the US dollar.

This is reducing government revenue and increasing the relative size of debt payments in foreign currencies.

An analysis of low- and lower middle-income country governments by the Jubilee Debt Campaign finds that there have been significant falls in government revenue and increases in debt payments, compared to what was expected just three years ago.

This leaves many countries facing a large funding gap on what was expected.
For comparison, this is $13 billion more than the $48 billion of aid which is claimed by the OECD to be spent in the 51 countries included in the study.