A Senior Director at ratings agency, Fitch, Mahin Dissanayake, has said that Ghana faces a very real possibility of debt default.
Speaking at a press conference, he warned that, “default is a real possibility”.
According to Mr. Dissanayake, “Ghanaian banks hold large volumes of government securities, so debt distress is going to put a lot of stress on the banks,” and that, “the operating environment is looking very fragile.”
Ghana’s plan to restructure local currency debt as part of an IMF bailout he said is “highly unusual”, and that this would likely lead to banks becoming insolvent.
“We estimate that if there was a 30% haircut, that would make at least several banks insolvent,” he said.
“It’s not just the banking sector that would be affected but also insurance companies, pension funds, asset managers – anyone who holds government securities,” he added.
Ghana’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.
Interest payments have been the government’s largest annual expense since 2019.
The country is expected to pay about 41 billion as interest payments in 2022.
And, investors have demanded a premium of 2,196 basis points over US Treasuries to hold Ghana’s Eurobonds, compared with an average of 875 for African issuers.
Similarly, Ghana’s sovereign dollar-denominated bonds dropped as much as 1.6 cents in the dollar on Wednesday, September 21, 2022 with debt maturing in 2025 and 2026 suffering the biggest declines, Tradeweb data showed.
Also, the cost of insuring Ghana’s debt against non-payment using credit-default swaps has soared to almost 5,000 basis points, from less than 1,000 in January 2022.