DDE set to impact banks balance sheet, private sector – Fitch Solutions warns
Fitch Solutions, a leading research and market information firm, has released its latest Sub-Saharan Africa Market Update for January 2023, highlighting the potential impact of the Domestic Debt Exchange Programme on banks in Ghana.
According to the update, the restructuring of domestic debt is likely to weigh heavily on the balance sheets of commercial banks, reducing their ability to issue loans to the private sector, including corporate institutions.
“This should serve as a wake-up call to the government,” said Senior Country Risk Analyst Mike Kruninger, who oversees the Sub-Saharan Africa region. “The reduction in loans will have a significant impact on the real sector of the economy.”
Despite the overall growth in private sector credit, as reported by the Monetary Policy Committee in its January 2023 Report, the real terms of private sector credit contracted sharply, reflecting sustained price pressures.
In addition to the impact on the economy, Kruninger warns of the potential for social unrest in 2023 if inflation continues to remain high.
“Given the high levels of consumer price inflation and rising taxes under the IMF programme, combined with higher interest rates, we believe that political instability is likely to increase in Ghana this year,” he said.
“The short-term political risk index has been on a downward trend for the past 12 months,” Kruninger added, highlighting the importance of addressing the issue promptly.
