The Finance Ministry has outlined government Medium Term Debt Strategy (MTDS) from this year till 2024 with the intention of keeping borrowing costs as low as possible, recuing debt risk and the pursuing of action considered to impact positively on public debt.
This thus annuls the MTDS for the period 2020-2023.
The strategy considers the costs and risks embedded in the current debt portfolio. This include the future borrowing requirements for the medium term, the 2021 macroeconomic framework, the prevailing market conditions and other factors necessary to develop the strategy.
This is in fulfilment of the statutory requirements in Section 59 of Act 921.
“As part of the measures to reduce risk, government will pursue liability management of the debt portfolio based on non-distressed debt transactions. This could indirectly affect cash flows from government fiscal operations when the timing of Liability management coincides with negative carry on idle cash”, a statement from the Finance Ministry stated.
Performance of 2020 medium term debt management strategy
The Finance Ministry said the macroeconomic framework of Ghana for 2020 was on a favourable path with macroeconomic stability restored and fiscal consolidation gaining root and consistent with a monetary policy stance that had supported a strong external sector development.
In addition, the financing conditions for the government it said was favourable, which supported growth (even with the COVID-19 pandemic) and inflation within the targeted corridor.
Investor sentiments were also high and their interest was once again heightened for Ghana’s Eurobond issuance in February 2020 resulting in a size of US$ 3.0 billion.
The COVID -19 pandemic hit Ghana around March 2020 and this adversely affected the economy’s positive economic performance. Consequently, the original medium term debt management strategy had to be recalibrated to ensure the financing gap of government is met.
This included the IMF Rapid Credit Facility of GH¢5.6 billion (1.45% of GDP); African Development Bank Funding of GH¢389.7 million (0.1% of GDP), European Union of GH¢504 million (0.13 % of GDP); the Bank of Ghana Asset Purchase Programme of GH¢10 billion (2.61% of GDP); and the World Bank funding of GH¢1.1 billion (4.6% of GDP).
2021 medium term macroeconomic framework
The 2021 and medium term outlook points to a strong recovery from the effect of the COVID-19 pandemic.
According to the Finance Ministry, the increased in government deficit in 2020 is expected to be temporary and therefore the medium term would consolidate to the Fiscal Responsibility threshold of less than 5% of GDP by end of 2024.
It said the thrust of the 2021 Budget is anchored on debt sustainability.
For this to be achieved, real GDP growth is expected to be on an average of 5.0 % for the medium term.
Excluding oil, the GDP growth is expected to record an average of 4.9%.
Inflation is expected to decline and be within the Central Bank target band of 8±2 percent.
Overall fiscal balance and primary balance are expected to return to the Fiscal Responsibility Act (FRA) threshold of 5% of GDP and a positive primary balance by 2024.
The Finance Ministry said MTDS for the period 2021-2024 represents a robust framework for prudent debt management, as it provides a systematic approach to decision making on the appropriate composition of external and domestic borrowing to finance the 2021 budget.
Consequently, the cost-risk trade-off of alternative borrowing strategies under the MTDS has been evaluated within the medium-term context.