Financial response to pandemic has ignored concerns of poor countries, says Ghanaian minister
The response of rich countries and multilateral institutions to the financial impact of the pandemic on poor countries has been inadequate and has ignored the concerns of governments and the private sector, the Ghanaian finance minister has said.
Ken Ofori-Atta argued that measures aimed at debt relief during the pandemic, such as the debt service suspension initiative, did not take into account the views of developing countries or private sector lenders. . He said the DSSI has not reduced the amount of debt owed, while participating countries have not sought relief from the private sector for fear of losing access to commercial debt markets.
“The West should bow its head in shame,” Ofori-Atta told the Financial Times in an interview. “There was a total distance between the resources available and what was applied [beyond advanced economies] to a problem that was global.
To address the problem, he called for a rethinking of the global financial architecture led by the World Bank, IMF and other institutions set up during and after World War II. “We need to seriously assess whether the established rules [then] are the most appropriate to move forward,” he said.
The decline in economic output and tax revenue caused by the pandemic has taken a heavy toll on the public finances of many developing countries.
Ghana is one of many countries worried about their ability to service their debt as the Federal Reserve prepares to start raising U.S. interest rates as early as next month, raising the cost of borrowing and adding pressure on the budgets of indebted countries.
Bonds issued by Sri Lanka are trading at levels that suggest the country will default this year. Several other countries, including Ghana and El Salvador, could face debt repayment problems by 2024.
This month, Moody’s downgraded Ghana’s credit rating to a level indicating substantial risk of default, becoming the second of three major rating agencies to do so and prompting the forced sale of Ghana bonds by credit managers. global assets. Ghana claimed that the downgrade revealed an institutional bias against African economies.
Ofori-Atta questioned the logic of the downgrade, given Accra’s efforts to cut spending and introduce new taxes, including a tax on digital financial transactions which he hoped would be approved by parliament in early March. .
“Moody’s was quick to downgrade us, which is very, very expensive [for borrowing]. Why couldn’t they wait six months to assess [the budgetary measures]?” He asked.
Ghana issued a $3 billion dollar-denominated Eurobond last year, but borrowing costs have since risen. Ofori-Atta said it was “good to take a break [from issuing foreign debt] this year and everyone settles in to understand that the changes we are making are structural”.
Investors are warning that Ghana will need to regain market access by next year in order to refinance outstanding bonds maturing in 2024.
Kevin Daly, chief investment officer at Aberdeen Standard Investments, said the planned fiscal adjustment for the country this year was “very optimistic” and that Ghana’s current high borrowing costs reflected uncertainty in markets over the achievement of its objectives.
“If they’re out of the markets for two years, the choices they have to make will be very difficult,” he said. “At that point they should go to the IMF because their external reserves will be eroded to the point that lack of market access becomes a solvency concern.”
Ofori-Atta said the digital transaction tax, known as the electronic levy, was one of several measures designed to ensure that more Ghanaians pay taxes. He said only 2.4 million Ghanaians pay tax, out of a potential 11-12 million.
Ofori-Atta cited the DSSI, set up by the G20 group of major economies at the start of the pandemic, as an example where poorer countries and private sector lenders were not sufficiently consulted.
The initiative offered 73 poor countries the opportunity to defer repayment of debts held by official bilateral lenders – governments and other state entities. But the DSSI did not reduce the amount of debt owed, known as the net present value (NPV), so many countries, including Ghana, did not participate.
“The thinking was correct, that in a liquidity crunch you need a moratorium, but it ended up being NPV neutral, which just kicks the street,” Ofori said- attack.