A Senior Director at ratings agency, Fitch, Mahin Dissanayake, has warned Ghana of a possible sovereign debt default, saying, any kind of debt restructuring could threaten the local banking sector.

According to him, “default is a real possibility”.

Speaking at a press conference, Mr. Dissanayake said “Ghanaian banks hold large volumes of government securities, so debt distress is going to put a lot of stress on the banks” he said.

He explained that “the operating environment is looking very fragile.”

According to him, reports that Ghana is planning to restructure that local currency debt as part of an IMF deal were “highly unusual”, adding going through with such a plan would likely cause significant problems for local banks.

“We estimate that if there was a 30% haircut, that would make at least several banks insolvent,” he said.

“It’s not just the banking sector that would be affected but also insurance companies, pension funds, asset managers – anyone who holds government securities,” he added.

According to data from the Bank of Ghana, Ghana’s public debt stock has more than doubled since 2015, steadily climbing from 54.2% of Gross Domestic Product to 76.6% at the end of 2021.

Interest payments have been the government’s largest annual expense since 2019.

The country is expected to pay about 41 billion as interest payments in 2022.

Investors demand premium of 2,196 basis points to hold Ghana’s Eurobonds

Investors demand a premium of 2,196 basis points over US Treasuries to hold Ghana’s Eurobonds, compared with an average of 875 for African issuers.

Similarly, Ghana’s sovereign dollar-denominated bonds dropped as much as 1.6 cents in the dollar on Wednesday, September 21, 2022 with debt maturing in 2025 and 2026 suffering the biggest declines, Tradeweb data showed.

However, much of the losses occurred in early trading, with investors ditching riskier assets in favour of safe havens amid rising tensions between the West and Russia.

Also, the cost of insuring Ghana’s debt against non-payment using credit-default swaps has soared to almost 5,000 basis points, from less than 1,000 in January 2022.