Weak Cedi Worsens Ghana’s Debt –Finance Minister

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(Last Updated On: November 25, 2022)

Weak Cedi Worsens Ghana’s Debt –Finance Minister

Ghana’s finance minister Ken Ofori-Atta said on Thursday that the depreciation of the cedi is affecting the country’s ability to manage its debt. In 2022, the local currency has lost more than 50% of its value, he told parliamentarians during a presentation of the 2023 budget.

MarketForces Africa reported that Ghana is battling high debt stock which has inflicted pressures on its financing, a mess coming at the time access to the Eurobond market is locked against the country.

“We expect external financing access to stay limited until at least an IMF programme is agreed, as Ghana is likely to remain locked out of Eurobond markets, which had been the country’s regular source of external financing”, Fitch said in a rating note in September. 

It is currently negotiating debt deals with a multilateral lender, the International Monetary Fund (IMF) while there are pressures meeting local debt servicing obligations which the authority has given priority.

Global rating agencies have also downgraded Ghana’s rating, exposing its risk to foreign investors amidst an unsustainable debt load.

Ofori-Atta said Ghana’s stock of debt has increased by 93 billion Ghana cedis or $7 billion this year alone due to the depreciation of the cedi since the beginning of 2022. READ: Ghana Cedi Worsens over Multiple Economic Slugs

The minister is in the midst of negotiating a relief package with the International Monetary Fund (IMF) as Ghana faces what has become its worst economic crisis in a generation. The authority in Ghana said the country agreed on a debt management strategy with the International Monetary Fund as Accra faces its worst economic crisis in a generation.

“The current debt sustainability analysis conducted reveals that Ghana is now considered to be at high risk of debt distress,” the minister told lawmakers during his presentation of the 2023 budget.

“Government and the IMF have agreed on programme objectives, a preliminary fiscal adjustment path, debt strategy and financing required for the programme,” he said, adding he hopes to reach a deal “very soon”.

He said the depreciation of the cedi was “seriously affecting” Ghana’s ability to manage its public debt, which has increased to $48.9 billion this year.

The exchange rate has weakened by 40-50% year-to-date against the US dollar, reaching GHC10:USD1 in September, potentially made worse by the drop in non-resident investment in local-currency debt. Non-resident holdings were GHC23.1 billion at the end of August or 4% of Fitch-forecast 2022 GDP.

Speaking further, the finance minister said Ghana will implement a debt exchange programme to address the challenges.

Ofori-Atta has faced calls for dismissal from both the ruling party and the opposition who accuse him of economic mismanagement. Last week he apologized for the country’s economic hardship but defended himself against their claims.

Ghana will impose a debt limit on non-concessional financing among other reforms, and will focus on using monetary policy to control inflation, which has exceeded 40%, the minister said.

The government will freeze new tax waivers for foreign companies and review tax exemptions for mining, oil and gas companies. It will also freeze hiring for civil and public servants, he said.

However, Ofori-Atta did not offer any cuts to spending on flagship programmes and detailed a swath of infrastructure project expansions such as road expansion.

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November 2022
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