Ghana :
Ghana: debt concerns
Unlike most countries in the region, Ghana has seen its sovereign bond spreads in USD over US Treasuries widen markedly, by 430 basis points (bp) since October, and they are now over 1,100 bp. With the risk premium at its current level, raising money in the international financial markets is prohibitively expensive.
With a debt to GDP ratio at around 80% against 61% at the end of 2019, the sustainability of Ghana’s debt is a source of concern for investors, while the fiscal consolidation programme has failed to convince. The government is banking on a substantial increase in revenue to bring the budget deficit down from more than 12% of GDP in 2021 to 7.4% this year and 5.5% in 2023. However, Ghana’s tax base is narrow (14-15% of GDP). Moreover, the debt trajectory front is vulnerable to various shocks, particularly the tightening in US monetary policy. Half of Ghana’s public-sector debt is denominated in foreign currencies and almost 20% of its domestic debt is held by non-resident investors.
The government’s leeway is all the more limited since high inflation prompted the central bank to raise its key interest rate by 100 bp to 14.5% in November. Further rate hikes are likely to follow, which could increase government borrowing conditions, already very costly, a little further. Almost half of the government’s budget revenues are already being absorbed by interest payments, of which 80% relate to domestic debt. Strong financing constraints could therefore force the government to make adjustments, particularly in public spending, at the expense of the economic recovery.
1/19/2022