Ghana to swap domestic debts to address country’s economic crisis

Ghana is experiencing its greatest economic crisis in a generation, with its local currency losing more than 50 per cent of its value against the dollar in 2022.

Chukwuemeka Ayomide • December 5, 2022

Ghana Cedis and dollars

To combat its worsening economic situation and mounting debt, the Ghanaian government on Monday began a domestic debt exchange.

Finance minister Ken Ofori-Atta announced this in a statement seen by Peoples Gazette on Monday, and in a now-viral video addressing Ghanaians about the country’s economic troubles.

Bondholders will be required to exchange their existing instruments for new ones.

According to the statement, new local bonds with maturities in 2027, 2029, 2032, and 2037 would be swapped for existing ones as part of the domestic debt exchange.

“Under the programme, domestic bondholders will be asked to exchange their instruments for new ones. Existing domestic bonds as of 1st December 2022 will be exchanged for a set of four new bonds maturing in 2027, 2029, 2032 and 2037,” the statement read.

“The annual coupon on all these new bounds will be set at 0% in 2023, 5% in 2024 and 10% from 2025 until maturity. Coupon payment will be semi-annual,” it added.

International creditors are eagerly awaiting information on plans for Ghana’s foreign debt, but Mr Ofori-Atta did not provide any. He claimed that the government had completed its debt sustainability review.

He, however, expressed optimism that the action would assist in restoring macroeconomic stability and put an end to the West African nation’s greatest economic crisis in a generation.

The country’s currency has lost more than 50 per cent of its value against the dollar in 2022, and the central bank last Monday increased its main lending rate to 27 per cent after inflation reached a 21-year high.

Already, credit rating firm Moody’s last week downgraded Ghana deeper from junk Caa2 to Ca, a slash of two levels, which is the second lowest score by Moody’s.

The Ca rating, according to Moody’s, reflects its view that private creditors will probably suffer sizable losses in the government’s planned restructuring of both domestic and foreign currency debts as part of the 2023 budget.

Moody’s also reduced Ghana’s local currency (LC) and foreign currency (FC) national ceilings from B2 to B3 to Caa1 and Caa2, respectively, echoing the two-notch downgrade of the sovereign ratings.

Ghana had been dealing with a debt management dilemma as the nation’s debt recorded a significant increase from $32 billion in 2017 to $54.4 billion.

The country’s debt-to-GDP ratio is expected to increase from 31.3 percent in 2011 to 90.7 per cent by the end of 2022, according to the IMF.

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