Rating agency, Fitch, is warning Ghana of the rising interest cost on domestic debt despite securing an International Monetary Fund programme.

According to the rating agency, it does not help with the overall debt sustainability in the medium term.

Interest rates on Treasury bills (T-bills) have been going up since falling drastically to about 18% in March 2023 from 35% , raising concerns about a probable restructuring of the short-term securities.

Speaking at a webinar on Africa Sovereigns Amid Financing Crunch, Senior Director for Emerging Markets, Toby Iles, cautioned Ghana and other African governments against the rising interest costs on domestic markets.

"As I mentioned right at the beginning, there has been more development in the domestic debt market and so it's become more important. When we look at things in terms of interest cost of the government; break them down by domestic debt interest cost and compare them with external interest cost, the share of interest cost on domestic debt has been going up”.

“So domestic debt becomes more of a question mark”, he added.

Toby Iles added that the terms of the debt restructuring may not help in the overall debt sustainability.

“Terms of the actual restructuring: it definitely helps in terms of liquidity but it doesn’t help in the overall debt sustainability over the medium term. It presupposes there will also be other fundamental improvements in fiscal consolidation.”

Banks will have recorded huge losses in 2023

Meanwhile, Fitch has stated that banks in Ghana will have recorded huge losses in 2022 if a flexible treatment had been applied to the Net Present Value (NPV) calculation.

According to the U.K based firm, the intervention by the Ghana Association of Banks helped to reduce the expected losses of the financial institutions. 

Banks recorded about ¢6.6 billion net losses in 2022, after several billions of cedis were written off as bad debt due to the Domestic Debt Exchange Programme.

Speaking at a recent webinar on the ‘Takeaways from the restructuring for sovereigns and banks”, Senior Director of Financial Institutions responsible for Europe, the Middle East and Africa, Mahim Dissanayake, said the Bank of Ghana did well with its forbearance measures.