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0 The Institute for Fiscal Studies (IFS) has cautioned the government not to look for the least opportunity to return to the international bond market.
Rather than borrowing from the international market, the IFS told the government to learn from the central bank under the previous managers, when it sought non-debt-creating avenues to increase its international reserves, which is the Gold Purchase Programme.
Explaining the reasons for its caution to the government, IFS explained that since 2000, Ghana has suffered two debt crises.
The first, the HIPC crisis in 2001, was caused by an excessive build-up of external debt during the 1980s and 90s. Ultimately, it took debt forgiveness under the HIPC Initiative to save the country from a complete meltdown.
The second crisis, which emerged in 2022, resulted from build-up of both external and domestic debts after HIPC, which accelerated in the past decade. However, its trigger was external, because it was precipitated by, as stated earlier, a loss of access to the international bond market in early 2022 after the country’s credit ratings had been downgraded to junk status. Furthermore, during the recent debt restructuring to tackle the crisis, negotiations over external debt were more complex and protracted than those over domestic debt.
“So, while the nation must avert a return to excessive debt build-ups of any form at all costs, past experience shows it is especially imperative to avoid sliding back into another foreign debt entanglement,” IFS said in a report.
“The government should not therefore look for the least opportunity to return to the international bond market. To ensure this: The government should learn lessons from the past three years in which the country has carried on without borrowing from the international bond market.
“During this period, the government was compelled to pursue steps to ensure lower fiscal deficits. This stance should be maintained into the future, since low deficits imply low borrowing.
“Since the crisis moved the central bank to more vigorously seek non-debt-creating avenues to increase its international reserves (the Gold Purchase Program), this should teach the government a lesson that the nation’s natural resources can be leveraged for self-reliance.”
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