Debt Stock

Ghana’s total medium and long-term external debt at end 2005 stood at US$6,347.9 million. This amount had been reduced significantly to US$2,143.79 million by the end of September 2006, as a result of a 66 per cent debt reduction under the MDRI.

In terms of broad creditor categorization, the composition of external debt remains largely the same as in 2005. The country continues to hold more of multilateral debt, amounting to about US$1,359.2 million (constituting 63.4 per cent of total external debt), of which the World Bank contributes about 44.3 per cent.  Bilateral debt constitutes about US$610.49 million (representing 28.5 per cent) of total external debt with the remaining.

External Debt Stock as at September 2006

The portfolio’s currency composition is as follows: 70 per cent are in Special Drawing Rights (SDR), 14 per cent in US dollars, 11 per cent in Euro and 5 per cent in other currencies, as in the table below. The portfolio has a high exposure to the US dollar (all SDR loans are repaid in US dollars) but given the relative stability of the cedi versus major currencies, especially the US dollar, we do not expect any adverse exchange risk.

Currency Composition of External Debt Portfolio

Currently the interest rate composition of the external debt is about 97 per cent fixed and 3 per cent floating. The 3 per cent floating rate share (predominantly in Euribor) is well below the international accepted range of 25 per cent to 35 per cent, and therefore do not pose any eminent danger in times of high fluctuations in floating interest rates. The high share of the fixed interest rates is due to the high proportion external debt from the multilateral creditors who apply mainly fixed interest rates.

New Aid Commitment Loans

As already indicated, we intend to work towards accelerated growth and lift the development agenda of the country with the main aim of meeting the MDGs and attaining a middle income status by 2015. Against this backdrop, Government will continue to source new financing at the least cost possible, to support the financing needs for productive public investments.

By September 2006, Government had contracted nineteen (19) new concessional loans from multilateral and bilateral sources totaling US$482.0 million to undertake projects in various sectors, including Water, Communication, Sanitation, Transport and Agriculture. Commitments by creditor category shows that 65.0 per cent of the total amount contracted was from multilateral institutions, with the remaining 35.0 per cent coming from bilateral sources.

Average Term of New Loan Commitments

Adhering to the strategy of borrowing at the least cost possible, new loans were contracted with a minimum grant element of 35 per cent. (see Table 8). From an average rate of 80 per cent in 2004, the grant element which defines the concessionality of a loan, declined marginally to 76.2 per cent by September 2006.

Trends in Average Terms of New Commitments (2004– 2006)

Grants

With the government’s strategy to seek more grants than loans to control the growth in public external liabilities, significant progress has been made in terms of the number and quantum of annual commitments. As at the end of September, 2006, a total of 34 grants amounting to US$ 774.9 million had been contracted. This represents about 221.6 per cent increase over the 2005 amount of US$240.96 million.

In terms of aid type, programme grants (5 out of the 34) amounted to about US$ 235.0 million, representing about 30.3 per cent of the total grant committed. The sectoral distribution of these commitments demonstrates government’s commitment to improve the infrastructure base to drive its growth and development objectives.

Developments Under Debt Relief Initiatives

The HIPC Initiative
Total projected debt service savings for 2006 was about US$297.6 million. By end-September 2006, an amount of ¢1.87 trillion (US$208.34 million) had been transferred into the HIPC Account. This was made up of relief from bilateral debt cancellation and multilateral debt service reductions for both government and government-guaranteed debts.

Multilateral Debt Relief Initiative (MDRI)

In the 2006 Supplementary Budget presented to this House on July 13, 2006, we indicated that the modalities and disbursements of the MDRI had been approved by the Boards of the IMF, World Bank and the AfDB. With the commitment of the three multilateral creditors to the MDRI, special accounts were opened at the Bank of Ghana to account for the inflows of the additional relief from the multilateral institutions.

So far, the special MDRI account has recorded about ¢1.9 trillion (about US$203 million) from the International Monetary Fund and the World Bank.

Source: Ministry of Finance / 2007 Budget, Ghana