Ghana’s primary income deficit is expected to stay at 3.1% of GDP due to debt restructuring which will cut external debt obligations by $3.5 billion from 2024-2026. However, U.S. aid cuts are projected to pressure the current account, potentially reducing net current transfers by 3.0% in 2025.
Fitch Solutions has recently predicted a modest primary income deficit for Ghana, attributed to ongoing debt restructuring initiatives. Specifically, the restructuring agreement with commercial creditors has enabled the substitution of previous dollar bonds for new instruments, resulting in a reduction of Ghana’s external debt service obligations by $3.5 billion from 2024 to 2026.
The reductions in interest payments are expected to significantly impact Ghana’s economy; Fitch reports a decrease of 1.3% of GDP in 2024, followed by further reductions of 0.9% and 0.6% in 2025 and 2026, respectively, compared to previous bond terms. Furthermore, a moratorium on debt servicing is secured until May 2026, contributing to a more favorable fiscal outlook.
Consequently, Fitch Solutions forecasts that Ghana’s primary income deficit will remain manageable at 3.1% of GDP, notably lower than the five-year pre-default average of 5.5%. However, Ghana’s current account is predicted to encounter pressures primarily due to significant cuts in U.S. international aid, which accounts for approximately one-fifth of the nation’s total aid receipts.
The United States announced a 90% reduction in USAID contracts, which is anticipated to adversely affect Ghana’s secondary income surplus. While Fitch Solutions foresees a rise in remittance inflows and assistance from alternative donor nations, these factors are expected to be insufficient in compensating for the downturn in U.S. aid. The firm anticipates a contraction of 3.0% in net current transfers in 2025.
In summary, Fitch Solutions projects that Ghana’s primary income deficit will remain modest due to effective debt restructuring efforts, which include significant reductions in interest payments and an extended moratorium on debt servicing. Nonetheless, Ghana will experience challenges in its current account as a result of drastic cuts to U.S. aid, leading to anticipated declines in net current transfers. Overall, while structural adjustments provide some relief, external vulnerabilities persist.
Original Source: www.ghanaweb.com
