Ghana's Debt Fitch predicts public debt would decline to 87% of GDP at the end of 2023
The Market Place with Daryl Kwawu (3-11-23)
#TheMarketPlace
#MyJoyOnline
https://www.myjoyonline.com/ghana-news/
Subscribe for more videos just like this:
https://www.youtube.com/channel/
Facebook: https://www.facebook.com/joy997fm
Twitter: https://twitter.com/Joy997FMInstagram:
https://bit.ly/3J2l57
Click this for more news:
https://www.myjoyonline.com/
#TheMarketPlace
#MyJoyOnline
https://www.myjoyonline.com/ghana-news/
Subscribe for more videos just like this:
https://www.youtube.com/channel/
Facebook: https://www.facebook.com/joy997fm
Twitter: https://twitter.com/Joy997FMInstagram:
https://bit.ly/3J2l57
Click this for more news:
https://www.myjoyonline.com/
Transcript
00:00 Coming up this afternoon on the market place ratings agency Fitch predicts Ghana's public debt would decline to 87%
00:07 of GDP at the end of 2023 from 89% in 2022.
00:12 How realistic will this be and what will be the impact of this on the economy? We shall be discussing that.
00:26 Finance Minister Hain's executive board of the International Monetary Fund is expected to deliberate on Ghana's approval for the second-tranch
00:33 bailout disbursement of the extended credit facility in the third week of November.
00:39 Expectation is that the fund will go for a board meeting maybe the third week of November and hopefully with the OCC or the Paris Club bringing a memorandum of understanding we should be able to clear for the second disbursement.
00:58 Plus Ghana's High Commissioner to UK Papa Wiswan Kuma highlights Citi's instability and high cost of doing business as a major disincentive for foreign direct investments.
01:10 Important that we also be able to get our currency stabilized insofar as it relates to foreign currency.
01:24 Details of these and many more shortly.
01:49 Thanks for your company. I am Pious Kujo-Baka. Let's now look at our stories and Finance Minister Ken Ufuriata has hinted that the executive board of the International Monetary Fund is expected to deliberate on Ghana's approval for the second-tranch bailout disbursement of the extended credit facility in the third week of November.
02:07 My colleague James Heshen has more.
02:09 According to the Finance Minister, the government remains optimistic that the Official Creditor Committee in the Paris Club will reach an agreement towards the signing of an MOU to pave the way for the second-tranch disbursement of $600 million.
02:24 Speaking at the maiden Ghana Mutual Prosperity Dialogues, the Finance Minister pointed out that the period between now and the end of the year is critical for Ghana to chart a path toward economic stability.
02:37 The expectation is that the fund will go for a board meeting maybe the third week of November and hopefully with the OCC or the Paris Club bringing a memorandum of understanding we should be able to clear for the second disbursement.
02:56 This period between now and the end of the year is critical. We do have the budget November 15th. We have the IMF board meeting November 22nd. In between here we are negotiating with the IPPs to get stability in our energy sector.
03:17 We pray that this will be done by the end of November. We also initiated discussions with our Eurobond investors and gave them broad contours of what we would like to see. They have also brought us some illustrative scenarios.
03:36 The Finance Minister also said, "Gavern to roll out a growth strategy to complement Ghana's macro fiscal reforms under the IMF program to support business growth in its 2024 budgets."
03:49 Going forward our objective will be to recalibrate our approach so we can do more with the private sector. To deepen this effort we are broadening the collaboration to bring all of us, the private sector, both foreign and local, development partners, labor and government, closer to foster an intimate partnership going forward.
04:14 Since the forum which we have named the Ghana Mutual Prosperity Dialogue is not merely a one-off event but a platform for ongoing dialogue and engagement between all stakeholders.
04:27 The Ghana Mutual Prosperity Dialogue's aim is to recalibrate government's approach to deepening collaboration with the private sector, development partners, labor and government to foster intimate partnerships.
04:39 James Echense reports for Joy Business.
04:43 More on the economy this time round on debt and ratings agency Fitch has indicated that Ghana's public debt would decline to 87% in relation to the size of the economy at the end of 2023 from 89% in 2022.
04:58 Fitch expects this will be partly offset by 33% year-on-year CD depreciation compared with the end of 2022. The following Business Desk report has more.
05:09 According to Fitch, this will be driven by the 50% haircut on Bank of Ghana's holdings of non-marketable debt, which represents a debt reduction of 4.2% of the estimated 2023 GDP.
05:23 It argues, assuming a 30% haircut on external debt conceded for the restructuring, year-on-year CD depreciation of 20% in 2024 and 9% in 2025, and a GDP deflator of 21% and 10% respectively, public debt would fall to 78% by 2025, although there is a high degree of uncertainty surrounding the definitive external debt restructuring parameters.
05:49 Fitch had earlier stated that Ghana's gross public debt for 2023 was estimated at 99% of GDP.
05:57 As part of the IMF program, Ghana has committed to undertake a primary fiscal adjustment of 5.1 percentage points of GDP by 2026 compared with 2022.
06:09 Fitch estimates the primary fiscal adjustment to reach 3.1 percentage points in 2023, bringing the primary deficit to 0.6% of GDP from 3.7% in 2022, driven by reductions of capital expenditure, the wage bill and other current expenditure, including transfers to the energy and financial sectors.
06:33 And it is important we have a discussion on the back of this. To help us do that, as economist Dr. Patrick Esumé has joined us via Zoom for more on that. Thanks so much, sir, for joining me on the Marketplace.
06:44 I want to find this from you. How significant is this prediction by Fitch concerning the public debt declining to 87% of GDP at the end of 2023 from 89% in 2022? It's only 3% reduction, right?
07:00 Good afternoon, good afternoon, viewers. Thanks for having me. Of course, it's only 3 percentage points, but I think it's important that we need to see some progress for the reforms that we've been doing.
07:15 In terms of where this is coming from, I think the fiscal consolidation itself, you know, wouldn't have been expected to achieve that much. But because of the debt restriction that we are doing, I think the debt should come down.
07:30 Don't forget that when we finish the current program, we are supposed to hit around 55% or so. So it is a step by a small step compared to where we have to reach by the end of the program.
07:44 Is that to say that it is insignificant, irrespective of the fact that, yes, it's playing a major role?
07:52 I would not say it's insignificant. If we are not doing these consolidations, I'm sure we wouldn't have been collecting that much revenue and we would have been spending more.
08:03 So it's not like we would have been at 90% and suddenly we are going to be at 87%. No. This is based on updated information. So based on updated information, we should read this as meaning that we are probably going to cut the deficit a little bit more than we thought at the start of the year.
08:23 I see. Now, Fitch believes that the 50% haircut on the Bank of Ghana's holdings of non-marketable debt plus haircut on external debt conceded for the restructuring are major pointers that may trigger the decline for that. Do you agree?
08:40 Yes, I think if you look at what we have planned to do with our deficits between last year and this year, it's not much. So it means that there are threatens, the size of the debt, the debt over the GDP. So the size of the debt coming down.
09:01 Now, we obviously know that when the currency is depreciating, then the debt in city terms will be up. So it's the size of the debt. Now, we are doing things to grow the debt less. Don't forget the GDP, the nominal GDP will be growing. So it means that the debt is going to grow by less.
09:18 Now, if you look at what we did, the 2023 budget, that would have been enough to reduce the debt by that percentage point. So it has to be the measures that we are doing, the debt restructuring mainly. I think that is where most of the additional savings are coming from.
09:38 Great. Mr. Sumeng, I want to find this from you. To what extent do you think that getting the financing assurance from external and bilateral creditors will go a long way to bring our debt to a sustainable level?
09:51 I think it is the expectation that the financing assurance will be obtained. I think we expect that by the end of the year, that will be signed. I think what is more important is how much of a debt relief you will get.
10:07 So Fitch is projecting that we will get up to 30% debt relief. If we get more, then it obviously helps bring down our debt levels more. So as for its importance, it's important for obviously going to take the second staff level agreement to the board for approval so that the second tranche comes.
10:31 But I think the signals we have is that it is going to happen. The most important thing is how much of a relief we will get, how much debt forgiveness we will get, how much of a haircut will be taken, and then how much, how will we change the terms of payment to be more flexible for Ghana to repay the debt.
10:53 So I think those are the key details. And those are important details because that will determine the difference between getting 30% debt relief and 35% debt relief will make a huge difference. So the amount of debt relief we get is important.
11:09 Finance Minister Ken Ufuriata is optimistic we will reach an agreement with external creditors soon for the onward disbursement of the second tranche by November, somewhere third week he says, as engagements have been fruitful so far. Are you positive about that and what more can we do?
11:29 Well, I think we have to take his word for it and hope that his optimism is well founded. Obviously he is more engaged in the day-to-day discussion. So he is saying, but the only caveat is that, you know, when we started, before we secured the initial commitment for the program to start in May, you know, there has been some postponement.
11:56 So, but let us hope that he has his hand firmly on something. I don't see any signal from anywhere that, you know, there's no commitment to reaching the agreement. I think, like I said, it comes down to maybe how generous the negotiations will be. I think that's really where the key will be.
12:18 I see. All right. Thank you very much, Dr. Patrick Esumen, for your time here on the Marketplace. He's an economist speaking to us on the back of his prediction that the debt-to-GDP ratio will decline by some 87% by the end of the year.
12:34 Let's stay a while longer on issues that has to do with the economy and Ghana's High Commissioner to the UK and Ireland, Papa Oswankoma, says, "The city's instability and high cost of doing business has been a major disincentive for foreign direct investments. According to him, the development has made it difficult to convince investors that Ghana is still the preferred country for doing business in the Saab region."
12:56 He has been speaking on PM Express Business Edition.
13:01 Inequality also affects the investment drive because people should be able to predict how much they make. You sell things in Ghana in cities and then the currency depreciates. You need more cities.
13:22 So it then becomes difficult to convince investors that if they invest in Ghana, they're going to get the necessary returns that they have budgeted for, even though, as compared to other places in the world, I mean, return on investment is quite high in Ghana and Africa.
13:48 But it is important that we also be able to get our currencies stabilized insofar as it relates to foreign currency. And that makes business predictable, more predictable.
14:08 And even FDIs as well.
14:10 Yes, yes, yes. But I'm also of the view that, well, all these things is a disincentive to our entrepreneurs to invest in Ghana because they believe that the risk is high and interest rates will be high.
14:29 So they will prefer putting their money in bonds and bills rather than investing them. So that also is something that we should be doing to help us.
14:41 Hence our emphasis now on joint ventures, joint ventures, joint ventures, where they bring in their hard currency. They also bring in their skill set in terms of standards and also open to the market.
15:10 That's Papa Wusako Ma in that interaction with my colleague George Yaffe in London. Let's stay a while longer with UK government.
15:17 British Airways says it has stepped up engagement with the government over what it describes as the rising cost of operations at the Kutukai International Airport.
15:26 Ghana is said to be one of the countries in the region with high airport taxes and charges.
15:32 Neil Alan Shanoff is the chief officer in charge of planning and strategy and has been speaking in an interview with Joy Business.
15:40 Look, pricing in the airline industry is very complex.
15:44 And, you know, the very heart of it all comes down a bit to supply and demand.
15:51 And so generally as flights get fuller, seats get a bit more expensive.
15:57 And, you know, even though we still compete with, say, whether it's Brussels Airlines, Air France, Emirates, people have the opportunity to make connections.
16:06 And so you have to offer a price that's right, that people will be willing to fly direct or maybe not take the connection.
16:14 But, you know, in just basic supply and demand, if the demand exceeds the supply, that tends to drive the price up.
16:22 And so really the way as an airline to be able to lower prices and make those more affordable is really by adding supply.
16:32 And so that was the motivation behind adding these additional frequencies.
16:37 And so if you think of, you know, again, supply and demand in a general market, if I mentioned by next April we'll have 55% more seats.
16:45 If you have 55% more seats that need to be sold, the way that you're going to sell them is ultimately you should see prices being lower.
16:54 And often, like I said, the way that airlines work is if flights get really full, that's when prices tend to increase.
17:03 If we have more seats, right, then there should be more seats out there for people to be able to access at lower fare buckets.
17:11 So from your part, you are committed to improving supply and that could go a long way to impact pricing on the route.
17:19 Yeah, exactly. Exactly.
17:21 And that is an assurance from you.
17:23 So I mean, going forward in April, when the more routes or more frequencies are increased, that could possibly impact on pricing, I would say.
17:33 That should impact on pricing again from the impact of just supply and demand.
17:38 I engaged another operator, a carrier that has been operating out of Accra for quite a long time.
17:45 He placed the concern to me that, George, you're pushing on pricing of ticket.
17:51 One of our biggest challenges in operating out of Accra for more than 20, 50 years has to do with the charges at Kutuka International Airport and the taxes.
18:02 It's a big challenge for them.
18:05 Whilst you push, George, on our pricing of a ticket, you could also push for those who matter in this space to help us.
18:11 Is that also a concern for British Airways when it comes to the charges, the taxes?
18:15 Because at the other end, people are pushing for a very competitive pricing of your ticket.
18:22 At the other end, if that is also looked at, it could help British Airways a lot.
18:27 Is that a challenge for you as well?
18:28 Yeah, and it's something we spoke about on and off with the government, local government.
18:34 In the same way I mentioned when I was talking about Heathrow and Gatwick, and that the cost of flying in and out of Gatwick for passengers and airlines is less than it is out of Heathrow,
18:45 it is very expensive operating into and out of Accra Airport.
18:50 That usually comes down to what landing fees might be, any taxes that might get paid, and also the cost of fuel.
18:57 The other thing you sometimes hear around the region is around the repatriation of anything that you sell locally.
19:04 We've seen that around Africa, it hasn't been a problem in Ghana.
19:11 But yeah, all of that, if an airport is very expensive to operate into, that ultimately will end up in the ticket price, because the airline needs to recover that cost.
19:21 And kind of simply, it's sort of why you see sometimes low-cost carriers, let's say flying short haul around Europe, will fly to secondary airports,
19:29 because it may cost them 40 euros less to fly in and out of that airport, and they can pass that on to the consumer.
19:36 And so it is a concern, there is the high cost of operating into Accra.
19:43 It is something we talk about with the government, but if those costs increase or decrease, you again would think that that would make its way into the ticket price.
19:56 Well, it's Friday and it's time for show business.
19:59 And you do know that a few weeks ago, we had a conversation here on our showbiz segment about the informal fashion sector in Ghana.
20:07 Well, our focus was centred around local tailors making clothing for their communities and neighbourhoods.
20:13 Following this, our culture journalist, Kenneth Awotri-Dakon, has been exploring the town over the past weeks
20:19 and has discovered a few things that have led us into the second leg of this Oya-Diye industry.
20:27 And this pertains to another crucial aspect of the industry, which involves imported clothing or "fous", as it is called in the local parlance.
20:36 Now, Kenneth has returned with more details on this industry and its significant impact on the fashion space.
20:43 Let's get more on that. Kenneth, thanks so much for joining me on the Marketplace.
20:47 I guess that is the reason why I hardly see you around.
20:52 Tell me how important this industry is.
20:56 So we would want to understand how the Rudai plays in our lives.
21:01 I think on Sunday, I found myself somewhere in Accra where there was a festival called the Bonyuwau October Festival.
21:08 So basically, they were using thrifted or second-hand or imported clothing and recreating them into nice garments.
21:17 And then there was a runway session as well.
21:20 And then there were vendors around who were also marketing their product that had been made from second-hand clothing.
21:25 So there were tailors, artisans who had the skill of putting those clothings together.
21:30 So basically, because of the conversation we had at that time about the OEID industry and how those people were actually creating and providing a service for their own community,
21:39 that sort of put some thoughts in my head about how these second-hand dealers are actually contributing to the fashion industry as a whole.
21:48 So basically, you may not want to admit it, but a lot of my friends, for instance…
21:52 Yeah, patronize them.
21:53 Yes, they do patronize them.
21:55 I find them openly saying that, "Where did you get this clothing?" They may tell you that they got it at this boutique.
22:00 But if you pull them to one side and ask them, "Where exactly did you get this?" They may tell you that they have a plug.
22:05 And that plug is a whole other conversation on its own.
22:09 They may not want to tell you, but they go to Kansamantu and get the very best of the clothing that they want.
22:14 And then they wear them. They look fly, but you may not know where they got it from.
22:17 Yeah, and I see. But really, are they appreciated? Are their presence being felt within the industry?
22:24 So, if you look at the economic demography of the country, basically, a lot of people who are marginalized when it comes to finances.
22:33 And so, because of the thrift nature of these products, instead of saving up a lot of money to get a clothing that they may not be able to afford with what they have,
22:43 they may rather go into some of these low-budget shops and then get the second-hand clothing and the thrift, as they now call it, for a much lesser price.
22:52 So, when it comes to financial empowerment, there is some sort of burden taken off of the pockets of people who do not have that much to get into the fashion space.
23:02 So, basically, there's also people who basically have the thrill of going, like that hunt, the thrill of going there and then finding things that they may not find anywhere else.
23:11 Because there are some products, actually, that may be very expensive on the international market.
23:15 Like, maybe you may find a Zara that you may not be able to afford.
23:18 But when those products find their way into the second-hand system here in Ghana, someone may find out, like, okay, so I'm wearing a very global brand, basically, but on a low budget.
23:29 And so, these are some of the things that, you know, it helps for the local people to actually get into that fashion scene as well.
23:37 So, when it comes to, like, the importance to these people, it is very, very economical. And that's what they say.
23:43 All right. Talk to me about the challenges these players face, really.
23:49 So, the challenges stem, basically, from the wider picture. When you look at the global figures, for instance, Ghana is the biggest importer of second-hand clothing.
24:00 And this has been so since 2002. 2000, 2001, we were second. And then from 2002, we have been the biggest importer of second-hand clothing.
24:11 So, you understand how much of a, you know, a wide, you know, array of economic, you know, space that that covers.
24:21 Because if you move from Ghana, the next countries that are there are, you know, Pakistan, Ukraine, UAE, Kenya, amongst others.
24:28 And so, if you look at the fact that it forms about 4.13% of the country's imports alone, you understand that it plays a very crucial role.
24:35 And so, looking at that, that brings a lot of challenges. Ghana, for instance, receives about 15 million items of, you know, every week, 15 million items in second-hand clothing.
24:43 And so, that's how much of a challenge that that poses. So, basically, these clothing sometimes have, you know, shorter lifespan.
24:49 And so, you don't wear them for too long, and then they go out of the system. And then also, it also sometimes leaves problems when it comes to, you know, wastage among all those things.
24:58 So, they have a variety of challenges that come along with that.
25:01 But Kenneth, you would agree with me that we've got to maximize this great potential in the industry. How do we do that?
25:07 So, many have called on legislation, maybe an outright ban. Some have, you know, advocated for some sort of regulation and not an outright ban.
25:17 So, that's a conversation that's ongoing. But there hasn't been any comments on that from government as well.
25:21 Also, upcycling, like we saw over the weekend, where the vendors who are dealing in the second-hand clothing were making, recreating them into very nice garments
25:30 where people feel like the upcycling is also a way to go.
25:33 So, others also, you know, proposing the fact that big brands should be able to be compelled to pay a fee for creating the waste that end up on the shores of Africa
25:44 or developing countries who may not have contributed in any way to that particular way.
25:48 So, basically, there's that as well. Upcycling and also legislation are some of the things that people are calling for to ensure that these, you know,
25:55 the menace that comes along with being a thrift shopper or, you know, second-hand clothing, are curtailed basically.
26:01 I know that you've patronized the works, have you?
26:03 I have a few things. I'll connect you to my blog.
26:07 Alright, thank you very much Kenneth Awotri-Dakom for the show business segment here on The Marketplace.
26:13 Alright, so that's how we part company on The Marketplace. I am Pius Kujubaka.
26:17 For more stories, log on to myjoyonline.com/business.
26:21 Do have a lovely weekend. Bye.
26:25 [Music]
26:44 [Music]