Ghana’s debt-to-GDP ratio could reach 55% under a 50% haircut scenario, says S&P Global
Ghana’s debt-to-GDP ratio has been a source of concern for the West African nation as it continues to work towards resolving its debt issues.
However, a recent prediction by S&P Global Ratings suggests that Ghana’s debt-to-GDP ratio (excluding guaranteed debt) would decline to about 58% of GDP by 2026.
This prediction is based on the assumption of a 30% haircut on external debt and assumes that the dollar value of Ghanaian GDP over the next three years remains close to last year’s figure of $67 billion, calculated at average exchange rates.
Additionally, it assumes cumulative fiscal consolidation of the underlying budget (excluding interest payments) of about 3 percentage points of GDP between year-end 2022 and year-end 2026, amid a solid recovery of GDP growth to above 5% starting in 2024.
While this prediction is encouraging, S&P Global Ratings acknowledges that all these projections remain highly sensitive to the exchange rate.
A stronger exchange rate or even higher GDP growth outcome could push debt-to-GDP lower, and vice versa. Under scenarios of haircuts closer to 50%, the target of 55% of GDP is more achievable, in the rating agency’s view.
S&P Global Ratings also highlights that if today’s spot rate of GHS 12.86 is used to calculate 2022 U.S.-dollar GDP, then the starting point for debt is not 80% of GDP but rather 93% of GDP.
This means that the underlying assumptions on growth, the exchange rate, and the size of the haircut, among others, would have to be more favorable to bring debt down to 55% of GDP by 2028.
Despite the challenges, Ghana’s government has been implementing various measures to address the country’s high debt-to-GDP ratio and the Covid-19 impact on its economy.
One of these measures is the successful conclusion of the Domestic Debt Exchange Programme, achieving over 80% participation of eligible bonds, including ESLA Plc and Daakye bonds.
Investors will be closely watching Ghana’s debt restructuring efforts as the country works towards improving its economic outlook. The successful resolution of its debt issues will be crucial to boosting investor confidence and spurring economic growth in the country.
