Ghana now has a financial sector worth over 60 billion Cedis to allow the government to embark on development projects, a professor at the University of Ghana Business School, Godfred Bokpin, has said.
This, he said, is attributed to the sacrifices Ghanaians made by enduring the haircuts on their financial investments during the domestic debt exchange programme.
To that end, he has asked the government to be measured in celebrating the recovery.
“The recovery we are seeing, we can trace to a haircut that people have gone through so people have sacrificed so much for Ghana to have this kind of recovery. We have to be measured in how we take credit.
“Remember, the fiscal space that we have created through the domestic debt exchange alone is almost a 61billion Cedis, that fiscal space that the Government is celebrating represents pains, cost and losses on the books of households, individuals, banks, and nonbank financial institutions.
“That is the price people have paid not the government, the government didn’t pay a price because of the fiscal adjustment, the government did not do the needful. So if any politician wants to take credit for the recovery we are seeing let us look at the data and let us be humble, let us sympathize with the pain that Ghanains and non Ghanains are going through in order for Ghana to have a fresh start.
“We have a fiscal space of more than 60 million Cedis, the question is, how are we going to use this fiscal space to ensure development that is sustainable, inclusive, broad-base. We should be interested in how the 2024 budget is going to look like,” he said on the Sunrise show with Johnnie Hughes on 3FM on Thursday, November 2 while reacting to the upgrade of Ghana’s Long-Term Local-Currency Issuer Default Rating (IDR) to ‘CCC’ from ‘RD’, by Fitch.
The upgrade suggests that Ghana’s economic and financial situation may have improved slightly.
Fitch typically does not assign Outlooks to sovereigns with a rating of ‘CCC+’ or below.
Fitch has also affirmed Ghana’s Long-Term Foreign-Currency IDR at ‘RD’ and the Country Ceiling at ‘B-‘. Fitch has assigned ‘CCC’ ratings to two interest-only bonds issued on completion of pension funds holdings of the domestic debt exchange. Fitch has also assigned ‘CCC’ ratings to four domestic US dollar-denominated bonds issued on 4 September 2023.
Fitch said the upgrade of Ghana’s Long-Term Local-Currency IDR followed the completion of the domestic debt exchange programme. Fitch considers that as a result of a series of domestic debt exchanges, Ghana has normalised relations with a significant majority of local-currency creditors, with a participation rate of 92% on local-currency government bonds (with similarly participation for Cocobills and locally issued foreign-currency bonds).
Some non-participating bondholders are domestic individual bondholders, for which the authorities have publicly stated being current on the payments following a memorandum of understanding signed in May 2023.
The local-currency debt exchanges represent a debt service reduction of GHS52 billion in 2023 (6% of estimated 2023 GDP or 39% of estimated 2023 revenue and grants). According to the IMF, debt service represented 117% of revenue in 2022. Of this total debt service reduction, we estimate the interest payment reduction in 2023 amounts to 1.8% of GDP or 12% of revenue and grants.
The domestic US dollar-denominated debt exchange adds another GHS5 billion (0.6% of GDP, 4% of revenue and grants) debt service reduction in 2023, and a further reduction is coming from the 50% principal haircut agreed with Bank of Ghana on its holdings of GHS71 billion local-currency non-marketable debt. These debt exchanges have brought down interest payments to a still high 38% of revenue and grants in 2023, from 47% in 2022 (commitment basis, including interest payments that are due in 2023 on external debt). Fitch considers another round of local-currency debt exchange as unlikely in the near term.
Fitch has also assigned ‘CCC’ issue ratings to two interest-only bonds that were issued to pension funds and to four domestic US dollar-denominated bonds, all issued as part of the domestic debt exchanges. Fitch has also affirmed the ‘CCC’ issue rating on local-currency bonds that it assigned on 22 March 2023. In August, Ghana made timely first coupon payments on these “new” bonds.
It further indicated that in October, the Ministry of Finance announced its plans for external debt restructuring parameters scenarios for bondholders, involving a nominal haircut of 30% to 40%, coupons of no more than 5% and maturities of up to 20 years, potentially considering value recovery instruments. According to the authorities, these parameters, together with domestic debt restructuring and planned fiscal consolidation, would enable Ghana to reach a moderate risk of debt distress in the IMF/World Bank debt sustainability assessment by 2028.
“Ghana is looking to restructure USD20 billion of external debt, including official bilateral debt, export credit agencies-backed commercial loans, Eurobonds and non-insured commercial loans, under the G20 Common Framework.
“Financing assurances from the official creditor committee (OCC) were provided in May 2023. Under its baseline scenario, Fitch expects Ghana to reach an agreement with private creditors by mid-2024, following an agreement with the OCC,” Fitch said.