DDE to reduce interest payments by 2% of GDP in 2023
Ghana’s domestic debt exchange is aimed at reducing the country’s interest payments by 1.5 to 2 percentage points of GDP in 2023, not considering the cost of rolling over bonds that would have matured in the same year.
The debt exchange government was prompted by the need for the country to secure a $3bn programme from the IMF. As a consequence of the debt exchange programme, Ghana’s Long-Term Local Currency Issuer Default Rating was recently downgraded by Fitch Ratings.
The downgrade indicates the ongoing challenges that Ghana is facing in the economic sphere which the government is taking steps to address.
The domestic debt exchange is part of the government’s efforts to reduce the country’s debt burden and improve its fiscal position. By swapping existing high-interest debt with new debt at a lower rate, the government hopes to reduce its interest payments and free up resources for other uses.
The exchange, which took place in December 2022, involved the issuance of new bonds with longer maturities in exchange for existing bonds with shorter maturities. The exchange was oversubscribed, with investors submitting bids worth more than the amount of debt on offer.
The exchange is expected to have significant benefits for Ghana’s economy. By reducing its interest payments, the government will be able to allocate more resources to other areas, such as infrastructure, education, and healthcare. This, in turn, is expected to spur economic growth and development, create jobs, and improve living standards for Ghanaians.
The exchange is also expected to improve Ghana’s debt sustainability and reduce the country’s debt-to-GDP ratio. This will be particularly important in light of the recent downgrade by Fitch Ratings, which highlights the need for Ghana to take steps to address its economic challenges.
However, there are also potential risks associated with the domestic debt exchange. One concern is that the exchange could lead to a loss of investor confidence in Ghana’s economy, particularly if investors view the exchange as a sign of the government’s inability to manage its debt. This could lead to higher borrowing costs for Ghana in the future, which would offset the benefits of the exchange.
Another potential risk is that the exchange could lead to a mismatch between the government’s debt obligations and its revenues. This could result in fiscal pressures and could make it more difficult for the government to meet its debt obligations in the future.
Despite these risks, the domestic debt exchange is seen as a positive step for Ghana’s economy. It is part of a broader strategy by the government to address the country’s economic challenges and create a more sustainable and prosperous future for Ghanaians. As the exchange moves forward, it will be important to monitor its impact on the economy and ensure that any potential risks are managed effectively.
