There are many worries due to the fact that the government debt sustainability analysis is still unknown, especially from individuals and institutions who have a large exposure to government debt.
Doris Ahiati, the chief executive officer of Crescendo Consult Ltd., believes that an open dialogue between the two sides is essential for minimizing harm.
Ghana’s public debt is expected to reach 104.6 percent of GDP by the end of the year, placing the economy in the debt-distressed category and further making the debt situation unsustainable. This means the country will no longer be able to fulfill its debt obligations, even domestically, according to the World Bank’s Africa’s Pulse report (October 2022, Volume 26).
Currently, the country’s local and foreign currency ratings have been downgraded from B-/B to CCC+/C with negative outlook from S&P rating agency and ‘CCC’ to ‘CC’ by Fitch, and the country is now seeking a US$1.5billion assistance from the International Monetary Fund (IMF) to shore-up public finances and regain access to credit markets.
These occurrences have affected the confidence of businesses and the financial sector, and raised concerns of persons and institutions with high exposure to government debt.
In an interview with the B&FT, Ms. Ahiati said a transparent stakeholder conversation can lessen the impact.
“There is a need for stakeholder engagements with people that are likely to be impacted because government owes them. A conversation that explains the situation and makes room for the person who has loaned money to government to propose what they can accommodate. Maybe it could be extending the repayment period or renegotiating the interest rate.
“So, I think the stage should be granted to the people who are investing in government bonds. If they are likely to be impacted, we should not sit on one side and just decide something and hit the market with it.
“It should be through a negotiation whereby they hear each side of the story and reach an agreement or a compromise that is fair for both parties,” she said.
She is also of the view that as government take pragmatic measures to lessen the impact of economic challenges experienced widely, it should be mindful of any action which undermines the financial sector’s confidence.
“I think you are indirectly referencing the rumors about possible a haircut. Personally, my concern is that we do not do anything to undermine the confidence of people in the financial system. That is where we derive our credit ratings and provide for businesses to grow.
“There is already evidence of lower confidence in the sector; people are keeping monies in their homes, people have bought dollars that they are keeping in their homes and these are not in the banking systems. And in the same way, people begin to look at options that will help them avoid being in the main financial system,” she noted.
Already, the central bank’s latest business confidence survey in August 2022 – which gauges the level of optimism among business managers – has revealed a slump in business confidence by a greater extent of 15.8 points from 98.4 points recorded in the previous survey of August 2021.
Mrs. Doris Ahiati is however hopeful that the IMF programme will help salvage the current situation and bring about some levelling.
“I believe that whatever programme the IMF comes with will be mindful not to hurt investor confidence so badly. But we are at a point where we cannot rule out that there will be painful actions which might be taken in order to address the situation – a quite challenging one. So either way, I think people are not going to have it easy.
“We do not know precisely what the government proposals under IMF will be and/or what the IMF will endorse. It might hurt a little bit in the short-term, but eventually it will contribute to our recovery,” she said.