Previous Quarterly Editions
Expropriation Risk: 52 52 53 54 ►Political Violence Risk:39 39 39 39 ►Terrorism Risk:45 47 48 48 ►Exchange Transfer and Trade Sanction Risk: 25 44 45 55 ▲Sovereign Default Risk:66 +34 659859873 65 74 ▲
TREND ▲
Protest intensity in 2022 and Q1 2023* 2022 Q1 2023Cost of living : Low LowAll protest: Low Low
Cost-of-living protest risk in 2023*Wage protest: Very High Food/fuel policy protests: High
*Note: Protest intensity is calculated based on ACLED. Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of calculations, see the introductory essay.
Ghana is expected to secure the IMF’s formal agreement to a long-awaited USD3-billion-dollar financial rescue package in the first half of 2023. The bailout was agreed in principle in December but remained contingent on the West African country reaching agreement with its domestic and international creditors on restructuring some USD30 billion in public debt. That hurdle now appears to have been passed, clearing the way for the IMF to sign-off on the rescue package.
Ghana formally defaulted on its external debt in December, by which time the country’s debt-to-GDP ratio was reported to have exceeded 105%. The foreign and domestic debt restructurings will see former high-yielding bonds replaced with new lower-yielding bonds with longer maturities, which should eventually see the debt-to-GDP ratio fall to a more manageable 55%.
The agreement hung in the balance for weeks following the December agreement in principle, as domestic bond holders haggled over terms, and only proceeded after President Nana Akufo-Addo’s government agreed to exempt pension funds from being forced to accept write-offs after trade unions threatened a general strike. China has also agreed to ease Ghana’s debt burden, believed to be in the region of USD1.7 billion, the details of which are currently being negotiated.
The ruling New Patriotic Party has agreed to implement wide-ranging economic reforms, which, along with comprehensive debt restructuring, include a fiscal strategy to increase tax receipts, the streamlining of public expenditure, improved management of state-owned enterprises, and the development of a medium-term plan to generate additional revenue.
President Akufo-Ado’s annual state-of-the-nation speech in March put much of the blame for the country’s financial and economic troubles on the fallout from the COVID-19 pandemic and the economic reverberations of Russia’s invasion of Ukraine in February 2022. But Ghana had been on an unsustainable debt trajectory prior to both these external shocks, and curtailing public spending will be both painful and likely to electoral censure in the 2024 presidential election.
TREND ►
Although Ghana poses little or no risk to foreign investors through outright expropriation of physical assets, the impact of the debt restructuring exercise can be expected to be severe for both external and domestic bondholders. While it may be some weeks or months before the full cost to lenders becomes apparent, it has already been reported South Africa’s four largest banks between them are collectively facing losses of USD270 million dollars, in some cases write offs of around 60%.
Industry estimates suggest international sovereign bond holders can expect to see an average coupon (interest) reduction of between 30-50% and five-year maturity extensions, in order to cover Ghana’s anticipated USD4.5-billion-dollar debt financing gap over the next three years.
Ghana’s Eurobonds were among the worst performers among emerging markets in 2022, as a debt restructuring exercise increasingly seemed inevitable. The economy now faces a poor growth outlook, a severe cost-of-living crisis with inflation peaking at a two-decade high of 54.1% in December, and further cedi currency depreciation and interest rate rises.
Neighbouring Côte d’Ivoire was also hit by the twin external shocks of COVID-19 and the economic fallout from Russia’s invasion of Ukraine but has weathered both significantly better than Ghana as a result of Abidjan’s more orthodox public debt issuance and management policies.
Public dissatisfaction over deteriorating living conditions triggered by persistently high inflation can be expected to lead to sporadic unrest, especially in the capital, Accra. Real GDP growth is expected to fall to between 2-3% as rising food and fuel prices depress consumer spending, and investment and government expenditure decline on the back of IMF-imposed austerity.
Real growth is not expected to pick up for several years, leading to further erosions in living standards. The ruling party has been facing mounting criticisms from the opposition National Democratic Congress over the government’s handling of the economy, while at the same time facing an internal revolt from an 80-strong faction within the ruling party opposed to Finance Minister Ken Ofori-Atta’s financial management.
Ghanaians are likely to face further cost-of-living stresses from rampant double-digit inflation and continued erosion of the currency, which results in ever-more expensive food and refined product imports. Although Ghana is a major hydrocarbons exporter, it remains reliant on imports of refined products such as petrol diesel and kerosene.
The Ghanaian security services are increasingly anxious about the deteriorating security landscape across the Sahel region, following first France and now the United Kingdom’s military withdrawal from the region.
The United Kingdom has since 2020 maintained a 300-strong force in neighbouring Mali as part of the UN mission to protect the local population from Islamic extremism. But London announced in November its intention to withdraw its forces due to increased instability in the region, a move seen as inevitable once France announced its withdrawal.
Two military coups in three years in Mali, together with Bamako’s controversial decision to invite the Russian private military company Wagner into the country to help counter Islamic extremism, made it impossible for U.K. forces to remain at their base in Gao. London subsequently accused Mali of undermining security in the region.
Ghanaian security services fear it is only a question of time before Islamic extremists operating in Burkina Faso, Côte d’Ivoire, and Togo cross the border into Ghana.
Ghana’s inflation slowed to 52.8% year-on-year in February, down from 53.6% in January, and the second monthly decline since peaking at a two-decade high of 54.1% in December. But the headline February inflation figure disguises a 59.7% rise in food prices and a 71.4% rise in transport costs.
Ernest Addison, Governor of the Central Bank in the world’s second-largest cocoa producer, was forced to raise the benchmark intertest rate by 250 basis points to 27% in November, and a further 100 basis points to 28% in January – although the January rate hike was less than was feared due to the impending deal with the IMF for a USD3-billion-dollar Extended Credit Facility.
The USD4-billion-dollar cost of cleaning up the financial sector, along with the abolition of school fees for 15–18-year-olds, were the ‘straws that broke the camel’s back’, although successive governments’ penchant for taking on new debt, such as the USD400-million-dollar cathedral in Accra – now on hold – illustrate the scale of the problem.
Years of austerity are now likely to follow. This period can be expected to see large cuts in the public salary bill, which is widely seen as one of the persistent factors behind Ghana’s excessive public borrowing.
After formally defaulting on its debt in December and having all but secured IMF agreement on a USD3-billion-dollar financial bailout (the seventeenth since independence from the United Kingdom in 1957), Ghana is now expected to return to macroeconomic stability – albeit with painful and unpopular cuts in public spending in the pipeline.
Ghana has spent 22 of the last 35 years under IMF supervision, and many are now questioning how long it will be before the country is forced to return to the IMF. In theory, the current financial crisis should not have happened – the 2018 Fiscal Responsibility Act, which imposed a deficit ceiling of 5% of GDP on government borrowing, should have been sufficient to have avoided the current bailout.
But the 2018 Act excluded various historical debts, such as the energy sector legacy debts and financial bail-out costs, the Sinohydro loan, and assorted state-owned enterprise debts. This resulted in an unduly optimistic picture of the scale of Ghana’s indebtedness. Had those debts been captured in the official figures, actual debt levels would have been higher and clearly on an unsustainable path, with metaphorical alarm bells sounding earlier than proved the case.
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