According to Bloomberg, the Ghana cedi has outperformed all other currencies this week when compared to the US dollar.
The cedi performed the best this week when compared to the dollar among around 150 different currencies from around the world (for the past 5 days).
The currency gained 10% against the dollar despite having lost more than 50% of its value over the course of the year. The cedi to dollar exchange rate is currently a little bit above GH12.50 after reaching a peak of $1 to more than GH15 this year.
About three months ago, the Sri Lanka rupee was demoted from the onerous position of worst performer versus the US dollar to Ghana’s currency. Ghana’s economy is in a precarious position as a result of the unchecked decline of the Cedi versus the US dollar, which has resulted in at least 7 downgrades of the nation’s long-term bonds from three international rating agencies in less than 11 months this year.
The national debt of Ghana increased by GH93 billion (about $7.2 billion at the current interbank rate), as stated in the 2023 budget statement by Finance Minister Ken Ofori-Atta, as a result of the depreciation of the Ghanaian cedi in less than 11 months this year.
The government formally announced the “Domestic Debt Exchange” debt operation exercise on December 4, 2022, outlining the details of debt restructuring for domestic creditors. This will make it possible for the much awaited $3 billion IMF rescue tranche.
“Under the programme, domestic bondholders will be required to exchange their instruments for new ones,” the minister in charge of finance stated. Existing domestic bonds will be swapped on December 1, 2022 for a group of four new bonds with maturities in 2027, 2029, 2032, and 2037. All of these new bonds will have an annual coupon of 0% in 2023, 5% in 2024, and 10% from 2025 until maturity. Semi-annual coupon payments will be made.
However, he made sure to emphasize that “the Government of Ghana has been working hard to limit the impact of the domestic debt exchange on investors holding government bonds, particularly small investors, individuals, and other vulnerable groups.” “Treasury Bills are totally exempt and all holders will be reimbursed the full value of their investments upon maturity,” as a result. President Akufo-Addo previously stated that “there will be NO haircut” on the principal of bonds and that individual bondholders will not be impacted. The Finance Minister reaffirmed this position.
The portfolio of government debt held by Ghana as of September 2022 totaled GH 467.4 billion ($48.9 billion), of which GH 195.7 billion ($20.5 billion) was domestic and GH 271.7 billion ($28.4 billion) was external.
The interest payment on loans for the 2023 fiscal year is projected to be GH52.6 billion, representing an increase of about 40.6% compared to the 2022 budgetary allocation and making it the largest expenditure line item the following year. Investors are awaiting the government’s decision on the nature of its external debt restructuring.
Although the Finance Minister, Ken Ofori-Atta, stated that “external debt restructuring parameters will be presented in due course” in his announcement of the Debt Exchange Program, his Deputy, John Kumah, revealed on November 24, 2022 that “domestic bondholders will receive zero interest for 2023, 5% interest in 2024, and 10% interest in 2025; and also, domestic bondholders can only expect to start receiving their full interest in 2026.”
In the meanwhile, “the government is proposing a 30% haircut on both principle and interests for international bondholders.” Mr. Kumah was adamant.