Ghana’s debt-to-GDP to decline to about 58% by 2026 based on 30% haircut on external debt – S&P


Ghana’s debt to Gross Domestic Product (GDP) ratio (excluding guaranteed debt) would decline to about 58% of GDP by 2026, rating agency, S&P Global has predicted.

This is from about 80% of GDP at year-end 2022, based on an exchange rate of ¢10.15 to $1 versus current spot exchange rates of about ¢12.86.

However, this is based under a scenario of a 30% haircut on external debt and assuming that the dollar value of Ghanaian GDP over the next three years remains close to last year’s figure of $67 billion — calculated at average exchange rates.

This, it said, assumes cumulative fiscal consolidation of the underlying budget (excluding interest payments) of about 3 percentage points of GDP between year-end 2022 and year-end 2026, amid a solid recovery of GDP growth to above 5% starting 2024.

“A stronger exchange rate or even higher GDP growth outcome could push debt to GDP lower (and vice versa). Under scenarios of haircuts closer to 50%, the target of 55% of GDP is more achievable, in our view”, it added.

All these projections, it pointed out, remain highly sensitive to the exchange rate.

“If we use today’s spot rate of GH12.86 to calculate 2022 U.S.-dollar GDP then the starting point for debt is not 80% of GDP, but rather 93% of GDP, and the underlying assumptions on growth, the exchange rate, and the size of the haircut, among others, would have to be more favorable to bring debt down to 55% of GDP by 2028”. It concluded.

The government on Friday February 10, 2023 concluded its Domestic Debt Exchange Programme achieving over 80% participation of eligible bonds.

These included ESLA Plc and Daakye bonds.

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