Adnan Adams Mohammed
Upwards trend in Ghana’s interest payment (debt servicing costs) due to it unsustainable debt levels, is expected to continue to exert upward pressure on government spending, Fitch Solutions has predicted.
The elevated interest payments, which has brought a situation of tight external and domestic financial conditions since 2022, will created a budget financing gap.
This is not particular with only Ghana but with Uganda and Nigeria as well, the UK-based firm, in an article titled “Return To International Capital Markets Belies Persistence Of Fiscal Risks In Sub-Saharan Africa,” indicated.
“Many governments across the region will continue to rely on domestic and external borrowing to cover fiscal deficits in 2025”, the article highlighted.
This comes as Sub-Saharan Africa (SSA) experiences mixed progress in fiscal consolidation.
Efforts to reduce deficits through tax measures are likely to face challenges due to structural revenue constraints.
Domestic yields remain elevated, despite a gradual shift towards monetary easing in the region.
In the second quarter of 2024, the quarterly GDP-weighted average of SSA’s 10-year government bonds reached 12.63%, surpassing the previous peak of 12.62% seen in the final quarter of 2022 after Russia’s invasion of Ukraine and the subsequent tightening of global financial conditions.
The spread between SSA bonds and US 10-year Treasuries also widened, reflecting domestic challenges, including monetary tightening in Nigeria and election-related volatility in South Africa.
By the fourth quarter, yields remained high in countries like Nigeria and Kenya, driven by ongoing monetary tightening and heightened political risks.
