The International Monetary Fund (IMF) has warned Ghana about elevated gross financing needs, which are projected to peak above 16% of Gross Domestic Product (GDP) in 2028. This significant financial pressure is primarily driven by a large concentration of Domestic Debt Exchange Programme (DDEP)-related maturities scheduled for 2027 and 2028.
Ghana's domestic debt vulnerabilities remain high, largely due to its heavy reliance on short-term treasury bills. This reliance creates substantial rollover needs in the coming years. Financial institutions also hold large exposures to government securities, further amplifying risks. The domestic market's capacity to absorb additional debt issuance might be limited, posing a challenge for the government.
This situation fits into Ghana's ongoing efforts to stabilize its economy following a period of high inflation and currency depreciation. The country has been implementing an IMF-backed programme aimed at restoring macroeconomic stability and debt sustainability. The warning highlights the critical importance of prudent debt management to avoid a recurrence of past financial challenges. Ghana's public debt stood at GHS 610 billion at the end of 2023, representing 71.3% of GDP, underscoring the scale of the challenge.
According to the IMF's Country Report on Ghana, a carefully calibrated debt management strategy is essential. This strategy should aim at lengthening maturities through a gradual scaling up of Treasury bond issuance. Such an approach would help mitigate rollover risks, which occur when existing debt needs to be repaid or refinanced. The IMF has provided technical advice (TA) to Ghana, leading to the adoption of a strategy to manage the 2027-28 maturity concentration.
This adopted strategy combines several measures. It includes partial redemptions through sinking funds, which are funded by earmarking 7.0% of non-oil tax revenue and Treasury bond issuance. The strategy also incorporates buybacks and rollovers through treasury bills. These measures are designed to smooth out the large debt repayments due in the next few years.
The IMF also emphasized the need to monitor non-resident participation in the domestic treasury bond market. While foreign participation can deepen the market and provide financing, it also introduces risks. These risks include potential capital flow volatility and exchange rate pressures, which could impact debt sustainability and financial stability. Close and continuous monitoring of non-resident involvement in both primary and secondary domestic debt markets is crucial. Ghana must be ready to adjust external borrowing plans if inflows exceed prudent levels.
Strengthening public debt reporting standards is another key recommendation. This involves aligning compilation and dissemination with the Government Finance Statistics Manual 2014 (GFSM 2014). Expanding debt coverage to capture quasi-fiscal activities and improving inter-agency coordination will enhance risk monitoring. These improvements will also support more informed borrowing decisions, ensuring greater transparency and accountability in public finance management.
The implications are clear: Ghana must diligently execute its debt management strategy to navigate these upcoming financial pressures. Failure to do so could jeopardize the progress made under the IMF programme and undermine investor confidence. Decision-makers will need to closely watch the implementation of the debt strategy and the government's ability to attract long-term financing. The markets will be observing Ghana's fiscal discipline and its capacity to manage its debt obligations effectively in the coming years.