Ghana’s rising debt to weigh on cedi, E-Levy to improve investor confidence – Fitch Solutions

Ghana’s debt to continue rising

Government secures 3-year bond worth GH¢489 million

Ghana’s cost of borrowing to increase, Fitch solutions

The research arm of international ratings agency, Fitch Solutions, has indicated that the implementation of Ghana’s electronic transfer levy will increase the confidence of investors even though the country’s debt situation may keep rising.

An analyst with the Sub-Saharan Africa Country Risk Team at Fitch Solutions, Ben Weaver, stated that the country’s cost of borrowing will continue on an upward trend due to the perceived risks about the country’s fiscal economic outlook.

“Borrowing costs will remain elevated in Ghana due to concerns from lenders surrounding the country’s fiscal position.”

“But the passing of the E-levy somewhat will improve investor sentiments, he said, adding “an example is a yield on Ghanaian bonds shrinking by 340 basis points [3.4%] to 14% in early April 2022, which is the lowest since the start of the Russian invasion of Ukraine; this remains high.”

“For example, on the 8th of April 2022, the government secured a 3-year bond worth a total of GH¢489 million, approximately $54 million at an annual interest rate of 20.85%”, he further stressed.

The analyst however projected, “we expect total debt will rise to a multi-decade high at 83% of Gross Domestic Product (GDP) in 2022, which is particularly high for the sub-Saharan Africa region and which we expect will continue to weigh on the cedi.”

This he noted may slow down investments in projects due to the slim nature of the country’s fiscal space.

“Moreover, high debt servicing will severely impact the rollout of public investment projects over the medium term which will, in turn, weigh and prevent stronger economic growth," he said.