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.
The 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, the inflation rate accelerated over pandemic pressures while local currency plunged following the blockage of external finance support.
Pressures increased in Accra following the Russia-Ukraine conflict. Ghana has been receiving support from multilateral lenders to reflate its economic position.
The 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.
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 the 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.