Ghana’s rising debt is gradually moving into a state of distress as investors are demanding more interest for the nation’s dollar bonds.

According to Bloomberg, investors are losing patience with the uncertainties within the fiscal economy, as the nation struggles to raise enough revenue to meet rising expenditure.  Revenue target for the nine-months of 2021 fell short by 7.4%, according to the 2022 Budget Statement and Economic Policy.

“The country’s dollar bonds have slumped 10% in 10 days, moving deeper into distressed territory as investors judge that re-financing debt in the Eurobond market won’t be an option when the Federal Reserve hikes rates and budget targets remain elusive.”

Government is seeking to raise almost ¢100 billion in revenue (excluding grants) in 2022, but most investors view this as ambitious since the global economy is recovering from COVID-19 pandemic, whilst revenue targets during the pandemic has been missed.

The extra premium demanded on Ghana's sovereign dollar debt jumped on Tuesday 11^th January, 2022 to an average 1,145 basis points, from 683 basis points in September 2021.

The nation’s $27 billion of foreign debt, according to Bloomberg Index, had the worst start to the year 2022 among emerging markets, extending last year's 14% loss.

Fiscal pressures to persist- World Bank

The World Bank in its January 2022 Global Prospects report said fiscal space is expected to remain tight with below-trend recoveries restraining revenue growth in most Africa countries.

“Many Sub Saharan Africa countries saw a marked deterioration in fiscal balances because of deployed relief measures, depleting already-narrow fiscal space (Ghana, Mozambique, Rwanda). This, together with constraints on financing and pressures to improve debt sustainability, will lead to a much less supportive fiscal stance across the region over the forecast horizon”.

“Fiscal adjustments are expected to predominantly happen on the expenditure side with a bigger reduction in fiscal deficits in resource-rich countries, partly reflecting revenue boosts from higher commodity prices and consolidation efforts in some countries”, it added.

Investors call for reassurance of debt sustainability

In November, some foreign investors called for reassurance of debt sustainability.

The investors hoped the financial plan for next year will show credible strategy to reduce the fiscal deficit, wasteful expenditure and debt.

According to Bloomberg, the country was to miss some of its macroeconomic targets inclduing fiscal deficit target of about 9.4% in 2021, due to revenue underperformance, whilst a 4-year high tax ratio target due to the impact of Covid-19 pandemic will also be missed.

Bloomberg again said investors were concerned about the country’s ability to service its loans as there is increasing cost of the country’s dollar bond. This is because the country’s debt has reached distressed levels. Presently, the country’s debt-to-Gross Domestic Product ratio is about 76%.

“Rarely do countries sustain such high interest burdens for any length of time without a crisis, an International Monetary Fund rescue, or default/restructuring,” Stuart Culverhouse, head of sovereign and fixed income research at Tellimer Research told Bloomberg.

“Without any material expenditure compressions, our forecasts show the budget deficit improving only moderately to -11%, -9.4% and -7.7% in 2022, 2023 and 2024, respectively,” Deutsche Bank Economist Danelee Masia also told Bloomberg.