Fitch warns of persistent liquidity challenges in Ghana
Fitch Ratings has warned that Ghana will continue to grapple with significant liquidity pressures through 2025 and 2026, even as the country makes strides in restructuring its debt.
The ratings agency highlighted that Ghana’s interest-to-revenue ratio—an indicator of fiscal strain—will remain among the highest globally, underlining the need for further drastic fiscal reforms.
According to Fitch, the interest-to-revenue ratio is forecasted to reach 29% in 2025 and increase to 30% in 2026. This figure is nearly double the emerging market average of 16%, posing substantial challenges to Ghana’s fiscal sustainability.
Liquidity Pressures Remain High
Thomas Garreau, Associate Director of Europe, Middle East, and Africa Sovereign Ratings at Fitch, outlined the gravity of the situation, stating, “Ghana will still face significant liquidity pressures. The interest-to-revenue ratio remains very elevated, at approximately 30%, which is nearly twice the emerging markets’ average. This represents substantial liquidity challenges, requiring drastic measures to stabilize the fiscal economy.”
While Ghana has implemented a 4.6 percentage-point primary fiscal adjustment between 2022 and 2024, Fitch’s analysis suggests that the current fiscal measures may not sufficiently ease liquidity pressures.
Debt Restructuring Progress
Fitch’s assessment comes as Ghana nears the completion of its comprehensive debt restructuring exercise, a critical component of its economic recovery program. The government launched the Domestic Debt Exchange Programme (DDEP) in December 2022, restructuring about GH¢97.8 billion of local bonds. Despite initial resistance from bondholders, the government achieved broad participation by offering new, longer-term bonds with reduced coupon rates.
The external debt restructuring process is ongoing, with the government working to finalize agreements with bilateral and commercial creditors under the G20 Common Framework for Debt Treatments. Progress has been reported in negotiations with the Paris Club, China, and private creditors, but the process remains complex.
Fitch anticipates Ghana will complete the external debt restructuring by June 2025, which will be pivotal in addressing the country’s liquidity challenges. Successfully completing this process could move Ghana out of sovereign default status by July 2025, a significant milestone for restoring investor confidence.
IMF Support and Policy Commitments
The debt restructuring initiative is a cornerstone of Ghana’s $3 billion International Monetary Fund (IMF) program, approved in May 2023, which aims to restore macroeconomic stability and debt sustainability. As part of the program, Ghana is implementing fiscal consolidation measures, including revenue-enhancing reforms such as the introduction of new taxes, expenditure rationalization, and efforts to widen the tax net.
In its first review of Ghana’s Extended Credit Facility (ECF) in November 2023, the IMF commended the government for making progress on key structural reforms. However, it emphasized the importance of accelerating the external debt restructuring process and maintaining fiscal discipline to ensure the program’s success.
The Road Ahead
Despite progress, Fitch’s analysis underscores that Ghana’s path to fiscal stability remains fraught with challenges. High borrowing costs, elevated debt levels, and limited revenue mobilization continue to weigh heavily on the economy.
The government’s ability to navigate these hurdles will be crucial as it seeks to restore confidence in Ghana’s economy, attract investment, and foster sustainable growth. With liquidity pressures expected to persist, Ghana’s economic recovery will require a delicate balancing act between debt servicing, fiscal reforms, and social spending to protect vulnerable populations. As the country moves closer to completing its debt restructuring exercise, the international community will closely watch Ghana’s progress in implementing reforms that ensure long-term fiscal sustainability and economic resilience.
