Ghana: Moody’s projects 26% increase in debt as debt-to-GDP to hit 104% at end 2022
Credit rating agency, Moody’s, has forecasted Ghana’s debt to increase by some 2,600 basis points (26%) by the end of 2022.
According to the rating agency, Ghana’s debt will rise to 104% of GDP by the end of this year.
Accounting for significant rise in the country’s debt, Moody’s asserts, will be the depreciation of the cedi which has so far declined in value by some 4,000 basis points (40%) to the dollar.
“The local currency, the cedi, has depreciated by around 40% against the US dollar since the start of the year, exacerbating the challenges from an already high debt burden. Because foreign currency-denominated debt accounted for 37% of GDP at end of 2021, Moody’s forecasts that the currency depreciation over 2022 will be the main contributor to the rise in the debt-to-GDP ratio this year to more than 100% of GDP (104%, 26 percentage points higher than in 2021),” Moody’s stated in its recent downgrade of the country’s credit rating from Caa1 to Caa2.
“Meanwhile, Ghana’s balance of payments position is deteriorating. Significant outflows in the first half of 2022 led to a fall in foreign exchange reserves to $5.9 billion as of the end of the second quarter of 2022 (covering 4.5 months of imports as of first quarter of 2022, which is the latest data available), down from $8.4 billion at the beginning of the year,” it added.
At the moment, the country’s debt-to-GDP ratio according to the Central Bank, stands at 78% of GDP.
Touching on interest payments on loans, Moody’s averred Ghana has one of the highest interest spending globally, given that interest payments is expected to rise to 58% of government revenue by the end of this year.
“Global and domestic rate hikes result in higher interest rates for the government while the loss in purchasing power induced by high inflation is a drag on economic activity. Higher government borrowing costs have rapidly increased its interest spending, which consumed almost half of the government’s revenue in 2021, a proportion Moody’s forecasts to rise to 58% in 2022, one of the highest globally,” it said.
Ghana, is currently seeking a $3bn Balance of Payment support programme from the IMF due to the unsustainability of the country’s debt levels.
The downgrade by Moody’s, further depresses the country’s issued eurobonds and further worsens the country’s market access loss position to the international markets.
