Ghana has been categorized as a high debt distress country by the World Bank because, by the end of 2022, it expects its debt to GDP to be 104.6%.
Its October 2022 Africa Pulse Report predicts that debt will increase dramatically from 76.6% a year ago due to a widening government deficit, a severe depreciation of the cedi, and growing debt service expenses.
Additionally, it predicts that in 2023 and 2024, the debt to GDP ratios will be 99.7% and 101.8%, respectively. Ghana’s GDP is predicted to be $72 billion in size, and this year, debt service would take up around 70% of the country’s income.
The report is released at the same time that the Bank and the International Monetary Fund (IMF) are studying the country’s debt sustainability. Restructuring of debt is necessary because a heavily indebted country cannot meet its financial obligations.
“Debt is expected to jump in Ghana to 104.6% of GDP, from 76.6% a year earlier amid a widened government deficit, massive weakening of the cedi, and rising debt service costs. The country’s debt is expected to remain elevated at 99.7% and 101.8% of GDP in 2023 and 2024, respectively.
“Tightening of financial conditions globally along with the fall of the domestic currency widened the sovereign spread by 233 basis points since December 2021”.
As a result, the country lost access to international markets”, the report mentioned.
The IMF should provide Ghana with $1.5 billion in assistance, according to the World Bank, in order to stabilize the country’s finances and recover access to the credit markets.
It added, “Nevertheless, despite the negotiation with the IMF, investors remain nervous about the country’s debt sustainability.”
The country’s local and international currency ratings were downgraded from B-/B to CCC+/C, it claimed, expressing these worries. As a result, despite the announcement, the cedi plummeted further with ripple effects on inflation.
Ghana’s credit rating was recently reduced to a deeper junk category by rating agencies Fitch and Moody’s.
They offered as their justifications the recent macroeconomic downturn, a worsening of the government’s cash and debt sustainability issues, and an elevated risk of default.