Ghana government announces default on most external debt as economic crisis worsens

The Ghana government today announces it is defaulting on most of its external debts. The Ministry of Financed announced in a statement that it is suspending payments on selected external debts.

Ghana’s public debt was GH¢467.4 billion in September, 42 per cent of that was domestic debt.

According to the statement, the country is faced with major economic and financial crisis, and its attendant social challenges.

“They are unlikely to be met, so the end of January 2023 date for concluding IMF talks and getting Board approval may not be met. Bringing together all the creditors and getting them to agree to a joint restructuring plan can take six months at the minimum. In Zambia’s recent case, it took almost two years,” says economist, Dr Theo Acheampong.

“In 2020 and 2021, the COVID-19 pandemic negatively impacted our fiscal and economic situation. Global risk aversion triggered large capital outflows, a loss of external market access and rising domestic borrowing costs,” the statement said.

It states further that this year, 2022, the global economic shock induced by the Russian invasion of Ukraine has further adversely affected the economy just when it was beginning to recover from the pandemic.

“The combination of adverse external shocks has exposed Ghana to a surge in inflation, a large exchange rate depreciation and stress on the financing of the budget. These factors taken together have put the sustainability of our debt at risk,” it added.

The government among other factors said it has launched an invitation to exchange its domestic debt.

“This domestic debt operation is part of a more comprehensive agenda to restore public debt sustainability. Given the magnitude of the economic and social crisis that Ghana is confronted with, this domestic debt operation will not be enough to close the large financing gaps that Ghana faces over the coming years,” the statement said.

The Government’s Debt Sustainability Analysis has demonstrated that our public debt, both external and domestic, is unsustainable, the statement admitted.

For these reasons, the government has requested for help from the International Monetary Fund, and has so far reached a staff level agreement, awaiting Board approval.

“In the interim, additional emergency measures are necessary to prevent a further deterioration in the economic, financial, and social situation in Ghana.

As it stands, our financial resources, including the Bank of Ghana’s international reserves, are limited and need to be preserved at this critical juncture. That is why we are announcing today a suspension of all debt service payments under certain categories of our external debt, pending an orderly restructuring of the affected obligations,” the statement concluded.

According to Dr Acheampong the decision is not much beyond symbolic meaning.

“The country has already been downgraded several times this year by the rating agencies and some of the creditors have priced in default or temporary suspension of payments – this is evidenced by the yields on the country’s Eurobonds trading in excess of 2,000 basis points over US government treasuries. Thus, the announcement of the suspension was expected in some sense. It is the first key step towards restructuring external debt,” he said.

By Emmanuel K Dogbevi

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