Ghana owed IMF, World Bank, others $7.9bn as of September 2020

Multilateral debt component of the external debt stood at $7.9 billion at the end of September 2020, data from the Bank of Ghana.

This is an increase of $117.31 million (1.5%), compared to the level of $7.81 billion recorded at the end of the second quarter of 2020. The debt was expected to have shot up in the full year of 2020 due to the covid-19 impact on the economy, which resulted in increased borrowing from the bretton wood institutions

The multilateral institutions include the World Bank, the International Monetary and African Development Bank.

According to the Bank of Ghana, the multilateral debt accounted for 32.7% of the total debt stock at the end of the third quarter of 2020.

However, debts owed the International Capital Market stood at $10. 2 billion, representing the highest percentage share of 42.1% of the total external debt stock as of the end of September 2020.

This is compared to 37.9% for the same period in 2019. This stock position depicted a marginal decline of $15.99 million (0.2%) compared to the level of $10.2 billion registered at the end of the previous month.

The bilateral component of external debt stock for the third quarter of 2020 was $1.23 billion and represented a share of 5.1 percent of the total external debt stock, compared with 5.9% for the same period in 2019.

On the other hand, commercial debts at the end of September 2020 totalled $2.2 billion, and constituted 9.4 percent of the total external debt stock.

This was $57.87 million, 2.6% higher than the level of $2.2 billion recorded in the second quarter.

Other concessional debts totalled $1.62 billion at end of the third quarter and constituted 6.7% of the external debt stock.

This indicated a decline of $26.69 million (1.6%) compared with the previous quarter’s position of US$1.65 billion.

Covid-19 spending pushes Ghana’s debt to GH¢286bn

Ghana’s public debt stock jumped from GH¢274.1 billion in September 2020 to GH¢286.9 billion in November 2020, according to the latest Bank of Ghana’s Summary of Economic and Financial Data.

This is equivalent to $50.2 billion and represents 74.4 percent of Gross Domestic Product (total value of goods and services produced in an economy within a period).

According to the data, the external component of the debt stood at ¢139.6 billion ($24.4 billion), about 36.2% of GDP.

Source: Charles Nixon Yeboah

Buy now, pay later firms such as Klarna face stricter controls

Fears over young shoppers’ debts mean buy now, pay later firms such as Klarna will face more scrutiny by regulators.

These services, offered through major retailers, allow people to split payments instantly and interest-free and are used by millions of people.

But the Financial Conduct Authority (FCA) said it would be easy to build-up unseen debts of £1,000.

Now it will regulate the sector, after use of these services saw a near fourfold rise last year.

Buy now, pay later services were used by five million people in the UK for total sales of £2.7bn. 

However, one in 10 people using them already had debt arrears elsewhere, a wide-ranging FCA review into credit services found.

Economic Secretary to the Treasury John Glen said: “By stepping in and regulating, we’re making sure people are treated fairly and only offered agreements they can afford – the same protections you’d expect with other loans.”

Chris Woolard, who led the FCA review recommending regulation, said that although buy now, pay later was convenient for some people, for others it was “a really easy way to fall into problem debt”.

This debt would not be seen by credit reference agencies and other lenders.

Under the new plans, providers would need to undertake affordability checks before lending and ensure customers were treated fairly, particularly those who are vulnerable or struggling with repayments.

The government said it would legislate as soon as possible, following consultation.

How buy now, pay later works

These firms allow people to choose – at an online or physical checkout – to pay for items in instalments or, in some cases, defer payments for up to 30 days. Large operators include Klarna, Clearpay, and LayBuy.

They have proved popular with younger shoppers – particular by offering a cheaper way to try before buying or returning. Use of these services rose fast over the course of the pandemic. Estimates suggest £4 in every £100 currently spent in the UK uses buy now, pay later. 

Rapper Snoop Dogg appearing in a Klarna advert
image captionKlarna’s marketing campaigns featuring rapper and investor Snoop Dogg have centred on how “smooth” it makes the payment process

Debt charities and campaigners have argued advertising via social media, often through influencers, has glamorised debt. They also suggest the services can make it too easy to fall into debt, and – while total debts are not huge – there are risks of unaffordable borrowing.

These companies do not charge interest and they argue they are more payment providers than credit firms. They have not fallen under the same level of regulation as other credit providers, such as credit card or loan companies who require FCA approval to lend and must conduct affordability checks.

At present, anyone who has a complaint regarding a financial problem with a buy now, pay later firm is unable to take their case to the financial ombudsman for an independent adjudication. This should now change.

Alice Tapper, who campaigned via social media for a change to the rules, said: “It was the hundreds of people who shared their story with the campaign who made it painfully clear that the absence of regulation is at the expense of consumers, particularly those who are young and vulnerable.”

‘A sticky situation’

Sophie Edwards is a follower of fashion, but it is a dedication that left her in debt.

She spent thousands of pounds on clothes, using buy now, pay later services, but then found herself “in a sticky situation” when she was made redundant.

“I was using it for retail therapy, to make myself feel better,” she said. “It did not feel like real money.

“You can just go shopping on a Monday, a Tuesday and a Wednesday.”

By Kevin Peachey
Personal finance correspondent

Ghana: National debt on the ascendant

Ghana’s public debt stock hit ¢273.8 billion, about 71% of Gross Domestic Product in September 2020, according to the November 2020 Summary of Financial and Economic Data by the Bank of Ghana.

This is equivalent to $48 billion.

Between July and September 2020, the nation added ¢10.7 billion to its public debt stock.

The rising debt though a worry has been precipitated by the impact of covid-19 whereby the nation had to borrow extra to finance the budget and also support Micro, Small and Medium Scale Enterprises who were heavily impacted by covid-19.

But for covid-19, the nation’s debt wouldn’t have reached the present levels. Many countries including some advanced economies had no option to borrow from the International Monetary Fund and World Baank to stabliise their economies.

According to the data, the external component of the debt stood at ¢138.5 billion ($24.3 billion), about 35.9% of GDP.

The domestic component was however estimated at ¢135.3 billion, about 35.1% of GDP.

On the other hand, the financial sector resolution bond stood at ¢15.4 billion, about 4.0% of GDP.

IMF projects 76.7% debt-to-GDP ratio

The International Monetary Fund earlier forecast a 76.7% of debt-to-GDP ratio for the country this year.

It however said in its Sub Saharan Africa Regional Economic Outlook report that the debt-to-GDP ratio will however drop slightly to 74.7 percent of GDP in 2021.

The Bretton Wood institution said the rising debt however possess a threat to both the fiscal and monetary economy, particularly revenue mobilization, exchange rate and inflation.

However, it was confident the authorities will do better in 2021 to bring the situation under control.

World Bank says Ghana isn’t borrowing too much

The World Bank Country Director for Ghana, Pierre Frank Laporte says the nation isn’t borrowing too much to be criticized that it is moving into a debt distress country category

Mr. Laporte however advised the government to pay critical attention to the macroeconomic stability by being prudent in spending to avert over-borrowing.

Finance Minister calls for debt forgiveness

Finance Minister, Ken Ofori-Atta at the recent IMF/ World Bank meeting called for debt forgiveness and cancellation for vulnerable and debt distressed countries in the world.

Mr Ofori-Atta said the countries needed the gesture to help empower them financially to be able to protect lives and rescue their economies from the impact of the ravaging coronavirus (COVID-19) pandemic.

If the Bretton Wood institutions in particular heed to call, the nation’s debt will go down appreciably.