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

Linkages between debt sustainability and debt management strategies. Fiscal and Debt Policies in Ghana Sovereign Debt Management Forum 2016 The World Bank 19 th -20 th October Samuel Danquah Arkhurst (Director – Debt Mgt Division) Ministry of Finance - Republic of Ghana October 2016

Country Context - Ghana

Recent History of the Republic of Ghana 238,537 sq. Km; Accra Territory & Capital Population (2013) 27 million Nominal GDP (2015) US$ 37.0 bn 3.9% GDP Growth (2015) GDP Per Capita US$ 1,339 Moody’s: B3 / Fitch: B / S&P: B- Sovereign Credit Ratings At 3.6 up from 3.4 CPIA Vibrant democracy with an impending to Democracy be heavily contested December Election 3

Evolution of Fiscal Policy and Debt Management 1992 -2000 2001 - 2008 2009 - 2012 2013 to Date  SSSS related arrears, rising • 4th Republic begins in  Ghana subscribes to (HIPC)  Set back with twin deficits (Budget & subsidy expenditure, higher 1992 with significant BoG0  Beginning of PRSPs as initiatives for interest payments, a shortfall in fiscal requirement the utilization of HIPC  Ghana produces a ‘Home Grown Policy’ taxes and grants puts pressure on • Fiscal Deficit increases as to deal with twin deficit  Increasing Social Intervention the budget; resulting in large a result of unbudgeted deficit overshoots  For credibility, Ghana signs 3-Year US$ Programmes to meet the MDGs by outlays (ie for 2015 918mn ECF Programme with IMF with  Economic management further Peacekeeping operations in two (3) positive reviews so far  Fiscal Space from HIPC, MDRI, and compounded by the onset of West Africa and District Domestic Revenue and Dev’t external pressures  Twin deficits brought under control in Level elections) Partners. 2015  Crude oil export commences with • Program and project aid  Ghana Implements Single Spine  Oil price crash in addition to traditional exports falling short of expectations from external sources in 2012 Salary Structure (SSSS) review exports (Cocoa and Gold) shrank remarkably  GDP rebasing and transition to  Trades Union unrest and increases country (LMIC) status in Wages  Sharp increase in domestic  Debt levels starts to accumulate to  2013,2014,2015,2016 Eurobond debt (from 3% of GDP in 1990 accommodate the increasing fiscal  HIPC completion point in 2006 with  Establishment of Sinking Fund to 25% of GDP in 2000) to deficits debt to GDP ratio reaching 25%  Development of Domestic Market cater for fiscal excesses  The First post-HIPC country to  New Debt Ceilings from IMF programme  Public Debt almost hitting access International Capital Markets 181% of GDP by 2000  LMIC status and cost of financing with a benchmark issue of US$750m  DMD becomes a  Establishment of the in 2007, 10yr tenure loan, at a  Gross financing needs peaked at 23.6% “ stand - alone” Division coupon rate of 8.5% of GDP in 2015 External Debt  ADMU elevated to become with the aid  New PFM law Repeals the 1970 Loans Secretariat (EDS) Act the Aid & Debt component ceded to  New PFM law Management Division External Mobilisations (ADMD) in 2004 establishes a Public Division Debt Management  Office 4

Historical Link between Fiscal Deficit and Debt 5

DSA and MTDS

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 7

MTDS Results • Exchange Cost/Risk Indicators External debt Domestic debt Total debt Rate Risk • Interest Interest payment as % GDP 1.6 5.9 7.5 Cost of debt Rate Risk Weighted Av. IR (%) 3.9 19.5 10.5 • Financing 1.1 6.9 ATM (years) 10.0 Risks Debt maturing in 1yr (% of Refinancing total) 5.3 46.9 22.8 risk Debt maturing in 1yr (% of GDP) 2.2 14.1 16.3 ATR (years) 9.1 1.1 6.4 Debt refixing in 1yr (% of Interest rate total) 23.2 46.9 33.1 risk Fixed rate debt (% of total) 79.3 100.0 88.0 FX debt (% of total debt) 58.0 FX risk ST FX debt (% of reserves) 15.2

Managing the Intra and inter linkages

Current Reform Agenda Conduct of Fiscal Policy and Debt Policies an integral part of current policy drive Governance Issues MTFF and MTDS  MTDS no more a residual policy from 20105  DMD leads MTDS and DSA  MTDS now to be presented and approved by  PFM law establishes Public Debt Management Cabinet Office and codifies these links.  Recognition as an integral part of the budget process  Cash Management now targeting financing as exogenous, thus cash outfows to adjust to shocks MTFF / MTDS Operations Governance Policy Fiscal Policy Debt Management Policies  Under the Home Grown Policy and IMF ECF  Strict handle on contingent Liabilities programme, fiscal consolidation for the medium  Refinancing / Buyback term.  Escrow / On-Lending  PFM law prescribes numerical rules for fiscal stance  Interest rate hedge  Bank of Ghana amendment reduces Central Bank  Sinking fund to buffer roll-over /maturity risks Financing to 5% of previous yeaer’s revenue with  Development of Risk Management framework other safety guards 10

Ghana’s Eurobond Story A tale for two Cities – MTDS and DSA Use of Proceeds Face Value Coupon Tenor in  New Debt Policies for bullet Year in Mn USD Rate Years CAPEX Liquidity Mgt loans shits into buy-back 2007 750.00 8.50% 10 750.00 mechanism. 2013 1,000.00 7.88% 10 780.58 219.42  Sinking Fund accumulated funds 12 with 3 Yr from Oil Revenue. Utilised Soft US$130 mn in Aug 2016 for 2014 1,000.00 8.13% 1,000.00 Amortizatio buyback of 2017 Bond Maturity. n  Total Buyback of US$549 mn 15 with 3 Yr out of US$750 mn already done. Soft  About US$800 mn already used 2015 1,000.00 10.75% 1,000.00 Amortizatio to retire domestic S.T. Bills in n 2015 & 2016 6 with 3 Yr  Excess of US$500mn available Soft 2016 750.00 9.25% 150 600.00 to take off US$200 mn balance Amortizatio of 2017 maturity and further buy- n back of remaining bonds  1 st Domestic Dollar Bond hugely TOTAL 4,500.00 2,680.58 1,819.42 successful last week at about DOMESTIC US Dollar Bond US$94 mn for 6% for a 2 year 2016 94.00 6.00% 2 year 94.00 period to also add to a further Oct liquidity mgt. 11

Results of all this …………………. Historical Measures Implemented Overall Achievements Issues • Refinance short-dated, high cost GHS debt with long • Rising • Public Debt to GDP ratio term, IDA guaranteed USD debt Public Debt responding to debt • Sinking fund established to manage repayments to GDP management policies. • Commercial funding only for commercially viable and since 2006. Tapering downwards for • Rapid priority high-impact projects the first time since 2006 • Comprehensive increase in debt sustainability plan being 2012-14 developed with IMF 12

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