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IMF warns government against collateralised borrowing

The International Monetary Fund (IMF), is warning the government to avoid collateralized borrowing as a means of reducing the mounting public debt.

The Executive Board of the Fund after the conclusion of its Article IV Consultation with Ghana expressed concern about Ghana’s high risk of debt distress and highlighted the need to strengthen the fiscal rules and phase out off-budget operations.

Collateralized borrowing occurs for instance when an institution pledges its assets or receivables to a lender which can be called upon in case of a default.

Institutions such as GETFund and National Health Insurance Authority that receive funds from the GETFund and NHIL levies, could take a loan for which proceeds from the levies could be used as collateral.

The Executive Directors in their statement urged the Ghanaian authorities to avoid the new collateralized borrowing to help reduce public debt and improve fiscal transparency.

The government’s US$2 billion sinohydro bauxite deal is seen as one of the new collateralized arrangements which the government seeks to leverage its bauxite resources for the Chinese facility.

The Fund’s statement comes at a time when the public debt stock as at September this year stood at GH¢208.6 billion, equivalent to 60.3 percent (GDP), according to the most recent data released by the Bank Ghana.

In September last year, BoG reported the debt stock at GH¢170.8 billion, equivalent to 57.2 per cent of GDP.

Debt dynamics

The Fund urged the government to pursue a more ambitious fiscal stance, based on a comprehensive domestic revenue mobilization strategy, that would help anchor debt dynamics on a clearly declining path, contain financing needs, create buffers for contingent liabilities, and support a stronger external position.

A number of directors suggested the adoption of a formal debt anchor to guide debt sustainability efforts over the medium term.


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