Ghana Keeps Benchmark Interest Rate at 30%

The Bank of Ghana maintained the status quo on benchmark interest rate at 30.0% as the inflation rate slowed for the third month in a row in October.

Statistics office reported that consumer inflation slowed to 35.2% on a year-on-year basis last month, from 38.1% in September and 40.1% in August. The Bank of Ghana targets inflation of 8%.

Unfortunately, inflation rate accelerated over pandemic pressures while local currency plunged following blockage of external finance support.

Pressures increased in Accra following Russia-Ukraine conflict. Ghana has been receiving support from multilateral lenders to reflate the economic position.

Government recently completed debt exchange programmes with some restructuring opportunities. High interest rates in the country have affected private sector performance and raised default risk in the banking sector.

Fitch Ratings upgraded Ghana’s Long-Term Local-Currency Issuer Default Rating (IDR) to ‘CCC’ from ‘RD’ in November, 2023.

The upgrade of Ghana’s Long-Term Local-Currency IDR follows the completion of the domestic debt exchange programme.

Fitch considers that as a result of a series of domestic debt exchanges, Ghana has normalised relations with a significant majority of local-currency creditors, with a participation rate of 92% on local-currency government bonds.

Some non-participating bondholders are domestic individual bondholders, for which the authorities have publicly stated being current on the payments following a memorandum of understanding signed in May 2023.

The local-currency debt exchanges represent a debt service reduction of GHS52 billion in 2023 (6% of estimated 2023 GDP or 39% of estimated 2023 revenue and grants).

According to the IMF, debt service represented 117% of revenue in 2022. Of this total debt service reduction, we estimate the interest payment reduction in 2023 amounts to 1.8% of GDP or 12% of revenue and grants. Naira Devaluation Deepens Economic Crisis in Nigeria

The domestic US dollar-denominated debt exchange adds another GHS5 billion debt service reduction in 2023, and a further reduction is coming from the 50% principal haircut agreed with Bank of Ghana on its holdings of GHS71 billion local-currency non-marketable debt.

Fitch said these debt exchanges have brought down interest payments to a still high 38% of revenue and grants in 2023, from 47% in 2022.