Weak Credit Ratings Plague Developing Economies, Urgent Action Needed
The World Bank has revealed that 28 developing economies, including Ghana, are ensnared in a debt trap, with no immediate prospects of escape. These economies, characterized by the weakest credit ratings, face significant challenges in managing their debt burdens.
According to the World Bank, the average debt-to-Gross Domestic Product (GDP) ratio for these economies stood at nearly 75% at the end of 2023, which is 20 percentage points higher than the typical developing economy. Despite this, some developing economies are beginning to see signs of improvement, with global inflation decreasing and interest rates stabilizing. This has led to a bond-issuance rush by these economies to refinance their debt while favorable conditions persist.
However, the 28 economies with weak credit ratings are struggling to find relief. These countries represent a quarter of all developing economies with credit ratings and 16.0% of the global population, yet their collective economic output only accounts for 5.0% of global GDP. This disparity makes it challenging for these economies to attract attention to their debt crisis, which the World Bank warns could worsen if not addressed promptly.
The World Bank emphasizes the urgent need for external assistance for these economies, including debt relief and an improved global framework for debt restructuring. Fiscal responsibility is also highlighted as crucial for these countries to regain economic stability and growth. The World Bank notes that fiscal imprudence was often the root cause of their debt troubles, and addressing this issue is essential to avoid further crises.
In the case of Ghana, the country remains in debt distress according to the Debt Sustainability Analysis (DSA) by the World Bank and the International Monetary Fund (IMF). The DSA indicates that Ghana’s debt is unsustainable, and the country lost international market access in late 2021. Despite these challenges, there are expectations that Ghana’s debt situation will improve and become sustainable by 2026, particularly with the existence of the IMF program.
Overall, the World Bank’s assessment underscores the need for immediate action to address the debt challenges faced by these developing economies and prevent further economic turmoil.