Be careful of rising cost on domestic debt – Fitch warns Ghana

Rating agency, Fitch is warning Ghana of the rising interest cost on domestic debt despite se­curing an International Mone­tary Fund programme.

According to the rating agency, it does not help with the overall debt sustainability in the medium term.

Interest rates on Treasury bills (T-bills) have been going up after falling drastically to about 18 per cent in March 2023 from 35 per cent, raising concerns about a probable restructuring of the short-term securities.

Speaking at a webinar on Africa Sovereigns Amid Financ­ing Crunch, Senior Director for Emerging Markets, Toby Iles, cautioned Ghana and other Af­rican governments against the rising interest costs on domestic markets.

“As I mentioned right at the beginning, there has been more development in the domestic debt market and so it’s become more important. When we look at things in terms of interest cost of the government; break them down by domestic debt interest cost and compare them with external interest cost, the share of interest cost on domestic debt has been going up. So domestic debt becomes more of a question mark,” he said.

Toby Iles added that the terms of the debt restructuring might not help in the overall debt sus­tainability.

“Terms of the actual restruc­turing: it definitely helps in terms of liquidity but it doesn’t help in the overall debt sustainability over the medium-term. It presupposes there will also be other funda­mental improvements in fiscal consolidation,” he added.

Meanwhile, Fitch has stated that banks in Ghana would have recorded huge losses in 2022 if a flexible treatment had been applied to the Net Present Value (NPV) calculation.

According to the U.K-based firm, the intervention by the Gha­na Association of Banks helped to reduce the expected losses of the financial institutions.

Banks recorded about GH¢6.6 billion net losses in 2022, after several billions of cedis were written off as bad debt due to the Domestic Debt Exchange Programme.

Speaking at a recent webi­nar on the “Takeaways from the restructuring for sovereigns and banks”, Senior Director of Financial Institutions responsible for Europe, the Middle East and Africa, Mahim Dissanayake, said the Bank of Ghana did well with its forbearance measures.