The strength that the Cedi gained against the Dollar in December last year is what has accounted for the reduction in the public debt stock, Governor of the Bank of Ghana (BoG) Dr Ernest Addison, has said.
He explained that when a country has a chunk of its total debt dominating in foreign exchange, whenever the local currency drops, it means the debt stock will increase.
Ghana’s public debt stock has reduced from GHS575 billion to GHS434.6 as of December 2022, according to the BoG’s Summary of Economic and Financial Data for April 2023.
This represents GHS141billion prediction in the debt stock
The Governor of the BoG Dr Ernest Addison explained at the 112th Monetary Policy Committee (MPC) Press conference in Accra on Monday, May 22 that the decline in the debt stock was a result of the strength that the Cedi gained against the Dollar in December last year.
“Largely due to the exchange rate appreciation that we saw. You all know what happened at the end of last year, the very large depreciation of the Cedi was corrected somewhat in the latter part of the year, that helps in terms of the Cedi value of the debt,” he said.
He added “It has to do with the issue of debt sustainability at the very heart of debt sustainability and the composition of our debts. So when half of your total debt stock is dominated in foreign exchange, a slight movement in your exchange rate will, and the sensitivity of your debt to exchange rate movement becomes paramount in the sustainability of that debt.
“So this is one of the major problems that we have faced probably since 2020. Anytime you saw a slight movement in the currency, it complicates the situation, and the government has to find more resources to service that debt and this is how the debt became almost unsustainable over that period.
“So yes, when you have a high composition of foreign debt in your total debt stock, you must be sensitive to the management of the exchange rate but that doesn’t mean that the Bank of Ghana’s policy is to focus on a particular exchange rate, we are focused on the inflation rate. The interest rate decisions that we take are geared towards attaining inflation target.”
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