Ghana at growing risk of debt crunch, analysts warn

LONDON, Jan 13 (Reuters) - Fast-rising debt levels and choking interest payments are putting Ghana at growing risk of a debt crisis, economists are warning.

While strong global commodity markets mean Ghana’s economy is expected to grow a respectable 6% this year, the threat of another double-digit fiscal deficit means its already-crushing debt burden will almost certainly worsen.

That budget hole works out at almost $6 billion (37 billion Ghanaian cedi). Debt as a share of gross domestic product (GDP) is forecast to reach 85%. Interest payments alone meanwhile will absorb 46% of the government’s revenues according to credit rating firm S&P Global - the second highest ratio in the world behind Sri Lanka, another country seen facing significant default risk.

“Ghana is a tell tale of how quickly things can change: It was always an investor darling,” said Lutz Roehmeyer at Capitulum Asset Management, pointing to many of Ghana’s dollar bonds maturing in 2026 and beyond yielding as much as 15%, choking off access to international capital markets.

“If you have these high interest rates, public debt is just not sustainable, the burden from high interest rates is so high that the debt is bound to explode.”

The government said earlier this week it planned to issue just over $4 billion worth of bonds in its local cedi currency in coming months to help pay its bills.

Ghana wants to raise just over 75% of its financing in domestic markets in 2022, although that would compound the risk of a simultaneous banking crisis in the event of a default as government debt or ‘claims’ already represent 31% of Ghanaian banks’ total assets.

Having only a small amount of dollar-bonds maturing this year and next provide some buffer, analysts say.

“While we maintain that a muddle through approach remains possible, the path is not sustainable given Ghana’s high interest payments-to-revenue ratio,” J.P. Morgan economist Gbolahan Taiwo said in a note on Wednesday.

Fiscal consolidation hopes also hinge on ambitious revenue assumptions. The government has projected its deficit, including energy and financial sector costs, will fall to 7.4% this year, but many economists think it is more likely to be around 10%.

“Plans are insufficient to credibly address the structural question of Ghana’s rapidly rising debt service burden,” said Goldman Sachs’ Ghana analyst Bojose Morule.

Ghana’s finance ministry declined to immediately comment on Reuters’ questions about the sustainability of the country’s debt and its deficit reduction plan.

In a news conference in December following the presentation of the 2022 budget to parliament, finance minister Ken Ofori-Atta said the government was committed to fiscal consolidation and debt sustainability in its economic recovery.

“We have a very competent team managing the economy and the prospects are bright,” he said.


Ghana’s bonds are already showing distress. Yields on its local benchmark 10-year bond hit 21.5% - the highest level since the pandemic market rout in spring 2020.

Many of its dollar-denominated bonds, usually bought up by international funds, have dropped around 10 cents year-to-date, longer-dated ones trade at 70 cents in the dollar.

Any move by ratings agencies - all ranking Ghana at the lowest level in the “highly speculative” junk bond category, some with negative outlook - could add to Ghana’s malaise.

Market-derived ratings based on credit default swaps calculated by S&P show investors expect a downgrade to the “C” bracket - a move, that would prevent many investors from holding the securities.

“If the fiscal dynamics continue like that in Ghana, they might be very soon “C” rated and that would spark another selling wave,” said Capitulum’s Roehmeyer.

Reporting by Marc Jones and Karin Strohecker; Editing by Toby Chopra