Country Context - Ghana Recent History of the Republic of Ghana - - PowerPoint PPT Presentation

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Linkages between debt sustainability and debt management strategies. Fiscal and Debt Policies in Ghana Ministry of Finance - Republic of Ghana

October 2016

Samuel Danquah Arkhurst

(Director – Debt Mgt Division)

Sovereign Debt Management Forum 2016 The World Bank 19th -20th October

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Country Context - Ghana

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Recent History of the Republic of Ghana

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Territory & Capital 238,537 sq. Km; Accra Population (2013) 27 million Nominal GDP (2015) US$ 37.0 bn GDP Growth (2015) 3.9% GDP Per Capita US$ 1,339 Sovereign Credit Ratings Moody’s: B3 / Fitch: B / S&P: B- CPIA At 3.6 up from 3.4 Democracy Vibrant democracy with an impending to be heavily contested December Election

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Evolution of Fiscal Policy and Debt Management

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• Sharp increase in domestic

debt (from 3% of GDP in 1990 to 25% of GDP in 2000) to cater for fiscal excesses

• Public Debt almost hitting

181% of GDP by 2000

• Establishment of the

External Debt Secretariat (EDS)

• Debt levels starts to accumulate to

accommodate the increasing fiscal deficits

• DMD becomes a

“ stand-alone” Division with the aid component ceded to External Mobilisations Division

• 2013,2014,2015,2016 Eurobond
• Establishment of Sinking Fund
• Development of Domestic Market
• New Debt Ceilings from IMF programme
• LMIC status and cost of financing
• Gross financing needs peaked at 23.6%
• f GDP in 2015
• New PFM law Repeals the 1970 Loans

Act

• New PFM law

establishes a Public Debt Management Office

• 4th Republic begins in

1992 with significant

fiscal requirement

• Fiscal Deficit increases as

a result of unbudgeted

• utlays (ie for

Peacekeeping operations in West Africa and District Level elections)

• Program and project aid

from external sources shrank remarkably

• Ghana subscribes to (HIPC)
• Beginning of PRSPs as initiatives for

the utilization of HIPC

• Increasing Social Intervention

Programmes to meet the MDGs by 2015

• Fiscal Space from HIPC, MDRI, and

Domestic Revenue and Dev’t Partners.

• Ghana Implements Single Spine

Salary Structure (SSSS) review

• GDP rebasing and transition to

country (LMIC) status

• HIPC completion point in 2006 with

debt to GDP ratio reaching 25%

• The First post-HIPC country to

access International Capital Markets with a benchmark issue of US$750m in 2007, 10yr tenure loan, at a coupon rate of 8.5%

• ADMU elevated to become

the Aid & Debt Management Division (ADMD) in 2004

• SSSS related arrears, rising

subsidy expenditure, higher interest payments, a shortfall in taxes and grants puts pressure on the budget; resulting in large deficit overshoots

• Economic management further

compounded by the onset of external pressures

• Crude oil export commences with

exports falling short of expectations in 2012

• Trades Union unrest and increases

in Wages

1992 -2000 2001 - 2008 2009 - 2012

• Set back with twin deficits (Budget &

BoG0

• Ghana produces a ‘Home Grown Policy’

to deal with twin deficit

• For credibility, Ghana signs 3-Year US$

918mn ECF Programme with IMF with two (3) positive reviews so far

• Twin deficits brought under control in

2015

• Oil price crash in addition to traditional

exports (Cocoa and Gold)

2013 to Date

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Historical Link between Fiscal Deficit and Debt

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DSA and MTDS

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Ghana Indicators of Public Debt Under Alternative Scenarios – 2016-36

• 2 Indicators Breaching

Thresholds under the Baseline

• PV of Debt-to GDP ratio
• Debt Service to Revenue Ratio

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MTDS Results

Cost/Risk Indicators External debt Domestic debt Total debt Cost of debt Interest payment as % GDP 1.6 5.9 7.5 Weighted Av. IR (%) 3.9 19.5 10.5 Refinancing risk ATM (years) 10.0

1.1 6.9

Debt maturing in 1yr (% of total) 5.3 46.9 22.8 Debt maturing in 1yr (% of GDP) 2.2 14.1 16.3 Interest rate risk ATR (years) 9.1 1.1 6.4 Debt refixing in 1yr (% of total) 23.2 46.9 33.1 Fixed rate debt (% of total) 79.3 100.0 88.0 FX risk FX debt (% of total debt) 58.0 ST FX debt (% of reserves) 15.2

• Exchange

Rate Risk

• Interest

Rate Risk

• Financing

Risks

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Managing the Intra and inter linkages

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Current Reform Agenda

MTFF and MTDS

• MTDS no more a residual policy from 20105
• MTDS now to be presented and approved by

Cabinet

• Recognition as an integral part of the budget

process

• Cash Management now targeting financing as

exogenous, thus cash outfows to adjust to shocks

• Under the Home Grown Policy and IMF ECF

programme, fiscal consolidation for the medium term.

• PFM law prescribes numerical rules for fiscal stance
• Bank of Ghana amendment reduces Central Bank

Financing to 5% of previous yeaer’s revenue with

• ther safety guards

Debt Management Policies

• Strict handle on contingent Liabilities
• Refinancing / Buyback
• Escrow / On-Lending
• Interest rate hedge
• Sinking fund to buffer roll-over /maturity risks
• Development of Risk Management framework

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Conduct of Fiscal Policy and Debt Policies an integral part of current policy drive

MTFF / MTDS Operations Policy Governance Fiscal Policy

Governance Issues

• DMD leads MTDS and DSA
• PFM law establishes Public Debt Management

Office and codifies these links.

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Ghana’s Eurobond Story

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Year Face Value in Mn USD Coupon Rate Tenor in Years Use of Proceeds CAPEX Liquidity Mgt

2007 750.00 8.50% 10 750.00 2013 1,000.00 7.88% 10 780.58 219.42 2014 1,000.00 8.13% 12 with 3 Yr Soft Amortizatio n 1,000.00 2015 1,000.00 10.75% 15 with 3 Yr Soft Amortizatio n 1,000.00 2016 750.00 9.25% 6 with 3 Yr Soft Amortizatio n 150 600.00 TOTAL 4,500.00 2,680.58 1,819.42

DOMESTIC US Dollar Bond

2016 Oct 94.00 6.00% 2 year 94.00

• New

Debt Policies for bullet loans shits into buy-back mechanism.

• Sinking Fund accumulated funds

from Oil Revenue. Utilised US$130 mn in Aug 2016 for buyback of 2017 Bond Maturity.

• Total Buyback of US$549 mn
• ut of US$750 mn already done.
• About US$800 mn already used

to retire domestic S.T. Bills in 2015 & 2016

• Excess of US$500mn available

to take off US$200 mn balance

• f 2017 maturity and further buy-

back of remaining bonds

• 1st Domestic Dollar Bond hugely

successful last week at about US$94 mn for 6% for a 2 year period to also add to a further liquidity mgt.

A tale for two Cities – MTDS and DSA

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Results of all this ………………….

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Historical Issues Measures Implemented Overall Achievements

• Rising

Public Debt to GDP since 2006.

• Rapid

increase in 2012-14

• Refinance short-dated, high cost GHS debt with long

term, IDA guaranteed USD debt

• Sinking fund established to manage repayments
• Commercial funding only for commercially viable and

priority high-impact projects

• Comprehensive

debt sustainability plan being developed with IMF

• Public Debt to GDP ratio

responding to debt management policies. Tapering downwards for the first time since 2006

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Thank you