Fitch Solutions projects Ghana’s primary income deficit to hold at 3.1% of GDP, aided by successful debt restructuring efforts. This includes a $3.5 billion reduction in external debt servicing through 2026. Although U.S. aid cuts threaten the current account balance, increased remittances are expected but will not fully compensate for the declines in aid.
Fitch Solutions has forecasted a modest primary income deficit for Ghana, benefitting from the country’s ongoing debt restructuring initiatives. The latest agreement with commercial creditors has successfully swapped existing dollar bonds for new financial instruments, effectively decreasing Ghana’s external debt service requirements by $3.5 billion from 2024 to 2026.
These strategic adjustments have already resulted in interest payment reductions by 1.3% of GDP for 2024, followed by further decreases of 0.9% of GDP in 2025 and 0.6% in 2026, relative to earlier bond agreements. Additionally, an agreement with official creditors has secured a moratorium on debt servicing, extending until May 2026.
As a consequence of these measures, Fitch predicts that Ghana’s primary income deficit will remain capped at 3.1% of GDP, notably lower than the five-year average of 5.5% before default. However, Ghana’s current account is likely to experience some strain due to reduced international aid from the United States.
The U.S., which represents approximately 20% of Ghana’s total aid receipts, has recently declared a substantial 90% cut in USAID contracts, which is expected to adversely impact the nation’s secondary income surplus. Although an increase in remittance inflows and assistance from other donor nations is anticipated, these will not suffice to completely counteract the significant reduction in U.S. aid.
Fitch Solutions projects a contraction of 3.0% in net current transfers for the year 2025, indicating continued challenges in balancing Ghana’s external finances amid these evolving circumstances.
In summary, Ghana’s primary income deficit is expected to remain low owing to effective debt restructuring and a temporary moratorium on debt servicing. Nevertheless, a reduction in international aid, particularly from the United States, poses challenges for the country’s current account, underscoring the need for sustained financial strategies. With anticipated increases in remittances from other nations, the impact of U.S. aid cuts will still be significant, leading to projected declines in net current transfers for 2025.
Original Source: www.ghanaweb.com
