Default ‘a real possibility’ for Ghana, Fitch senior director says

A senior Director from the ratings agency Fitch, Mahin Dissanayake has raised doubt about Ghana’s debt sustainability portfolio.

“Sovereign debt default is “a real possibility” for Ghana, and any kind of domestic debt restructuring could severely threaten the local banking sector” … Mahin Dissanayake said at a press briefing on Wednesday.

The projection comes ahead of IMF delegation second visit next month after Ghana officially applied for bailout.

Ghana a leading gold- and cocoa-producing country globally has been struggling to slow galloping inflation, reduce public debt and revalue the local currency.

“Ghanaian banks…hold large volumes of government securities, so debt distress is going to put a lot of stress on the banks,” he said. “The operating environment is looking very fragile.”

Ghana’s debt stock has more than doubled since 2015, steadily climbing from 54.2% of GDP that year to 76.6% at the end of 2021, according to government data.

Interest payments have been the government’s largest annual expense since 2019, and were its second-largest expense for five straight years prior to that, finance ministry figures show. Domestic debt accounts for more than 80% of that.

Dissanayake said that reports that Ghana is planning to restructure that local currency debt as part of an IMF deal were “highly unusual”, and that going through with such a plan would likely cause significant problems for local banks.

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