The World Bank Country Director, Pierre Frank Laporte, says Ghana is yet to formally apply to the bank for a debt service respite, as the country considers options to mitigate the fiscal and economic stress caused by the COVID-19 pandemic.
Mr. Laporte told Business24 in an exclusive interview that although government agrees that a suspension of its debt service commitments with the Washington-based lender would offer it some respite, the bank is yet to receive an official request to that effect.
“Ghana has not yet officially made a request for debt service suspension. The Finance Minister and his team are still considering this. There are several issues related to that—for instance, there are benefits and costs of such engagement,” Mr. Laporte said.
With the COVID-19 pandemic hitting hard at government’s revenues, and with unplanned public expenditure expanding, Ghana, like most developing countries, is contemplating a debt service reprieve from lenders to be able to withstand the pandemic’s shock.
President Akufo-Addo in April announced that an agreement had been reached with the Bretton-Woods institution to freeze the country’s debt service commitments for the rest of the year. Ghana’s outstanding debt to the World Bank stood at US$4.2bn as at May 31.
Mr. Laporte said while a formal notification is yet to be received by the bank from Ghana, other countries that made a similar request have been put on a watchlist by some credit rating agencies—which perhaps could be a reason holding government back.
According to the Country Director, should government apply for debt service suspension, it stands to get a reprieve of about US$80m in commitments for the rest of the year.
The debt freeze, he quickly added, comes with its own conditionalities that government would have to fulfill should the formal application be made and granted.
Mr. Laporte stated that government would have to make a commitment to spend the equivalent of the amount granted on social protection, poverty alleviation, health or any other area related to the fight against the pandemic.
“Countries that apply for the suspension would be obliged to disclose all public sector financial debt, which means that central government and all state enterprises debt must be disclosed,” he said.
With Ghana’s public debt hitting GH¢236bn as at March this year—a figure which is likely to surge due to revenue shortfalls and increased expenditure—the World Bank country chief said a debt service suspension deal would also be tied to a freeze in commercial borrowing.
“During the period of the suspension, the country should be committed not to contract any new non-concessional debt. Non-concessional debt has a higher interest rate and shorter repayment period,” he said, suggesting that countries getting a reprieve on lower interest debt should not be seen contracting new expensive debt.
Nevertheless, Mr. Laporte said he believes Ghana’s debt service obligation to the bank does not put a strain on its finances, arguing that servicing the obligation should not be a problem for the country.
The Ministry of Finance did not respond to Business24’s enquiries on whether or not government will take up the offer of the World Bank’s relief as previously suggested by the President.