A senior director at ratings agency, Fitch, Mahin Dissanayake, has added his voice to reports predicting a debt default on the part of the Ghana government.
At a press conference on September 21, 2022, Mr Dissanayake noted that as Ghana contends with an economic crisis, any sort of debt restructuring could have a negative impact on the local banking sector.
“Ghanaian banks hold large volumes of government securities, so debt distress is going to put a lot of stress on the banks,” he said.
His comments come after reports that the government is seeking to restructure its debts as part of a deal with the International Monetary Fund (IMF).
On the matter, he said that “if there was a 30% haircut, that would make at least several banks insolvent,” he said.
According to him, insurance companies, pension funds, asset managers – anyone who holds government securities would be affected by such a move.
Mr Dissanayake stated that Ghana’s “operating environment is looking very fragile,” therefore, stating that “default is a real possibility.”
This is not the first time it has been predicted that the government may default its debt payment, just as Sri Lanka.
A Bloomberg study in July this year ranked Ghana 2nd among countries with the highest debt default risk in 2022.
Ghana closely follows El Salvador, which holds the first spot in the Sovereign Debt Vulnerability Ranking.
Ghana’s debt to Gross Domestic Product (GDP), according to Bloomberg, is estimated at 84.6% by the end of this year.
Data from the Bank of Ghana shows that the country’s public debt stock has more than doubled since 2015, steadily climbing from 54.2% of Gross Domestic Product to 76.6% at the end of 2021.
The country is expected to pay about US$41 billion in interest payments this year.
In May 2022, Sri Lanka defaulted on its debt for the first time in its history as the country struggled with its worst financial crisis in more than 70 years.
Despite a 30-day grace period, Sri Lanka failed to settle its $78m of unpaid debt interest payments.
To prevent Ghana from being in a similar situation, former Finance Minister, Seth Terkper, has called on the government to take drastic measures, arguing that total dependence on the domestic market would not be enough.
“The worst thing that could happen to us is to default, given the fact that our turning to the domestic market, which I recall, there was a boast that we could finance the budget from the domestic market (but) is not materializing because of the auction shortfalls and the rest,” he said.
Source: The Independent Ghana