Ghana’s Economy Now Fragile Due To Debt …Standard Bank Group report

Ghana is one of five key African economies which will face serious debt risk in the next two years.

This is according to a report by Africa’s largest bank, the Standard Bank Group.

Bloomberg quotes Jibran Qureishi, head of African research at Standard Bank Group Ltd as saying “Debt sustainability now requires sharper focus.”

According to the Johannesburg-based lender, Ghana is in similar soup as, Kenya, Angola, Ethiopia and Zambia.

Together, the bank calls the countries, “fragile five” in the report which covered 18 countries.

However, the same report also highlighted Uganda as among the continent’s brightest stars in 2022.

According to Qureishi, Ghana may need a bailout from the IMF to restore confidence in investors, adding the country’s current debt demands a premium over U.S. treasuries of more than 1,000 basis points, a level considered distressed.

In the mess, Ghana does not have much hope with Eurobonds because lenders see a re-financing in the Eurobond market to be unviable when the U.S. Federal Reserve increases interest rates and if Ghana’s budget targets prove elusive.

Meanwhile, China, a traditional lender to Ghana, has become cautious about lending to the country because of its untamed debt. Consequently, experts have said that an IMF program is Ghana’s best hope with some experts in the country urging the Akufo-Addo government to swallow its pride and make the jump for the IMF program early.

According to the Standard Bank’s Qureishi, stabilizing public finances may prove difficult given the government’s “overly ambitious” revenue estimates, while efforts to cut spending could face hurdles with public-sector wages and debt-service costs accounting for more than half of expenditure.

In the 2022 budget, public sector salaries and interest payments alone constitute 72.9% of the total budget.

Meanwhile, the government’s over-ambitious revenue target is already facing hurdles with the Minority in Parliament, backed by Ghanaians, resisting the government’s e-levy tax.

In the case of Kenya, analysis is that While the country is still able to refinance its debt and is considering a $1 billion Eurobond in the first half of the year, political risks linked to elections planned for August could delay efforts to rein in borrowings and narrow the budget deficit.

Kenya also has a huge debt problem with servicing costs now standing at 35% of foreign-exchange reserves and 43% of tax revenue, according to Standard Bank.

According to Qureishi, Kenya falls into the same bracket as Ghana from a fiscal perspective. The main difference is an IMF program that Kenya secured last year.