The Domestic Debt Exchange Programme is likely to weigh on the balance sheets of banks in Ghana and consequently reduce credit to the private sector, Fitch Solutions has revealed in January 2023 Sub-Saharan Africa Market Update.
According to research and market information firm, the reduction in loans particularly to corporate institutions will impact on the real sector of the economy.
Senior Country Risk Analyst in charge of Sub-Saharan Africa, Mike Kruninger, said this should be a woke up call to the government.
“When talking about access to credit, another factor that I think is really important to mention here is Ghana’s Domestic Debt Restructuring Programme. So long as negotiations are still ongoing, the likely restructuring of domestic debt will weigh on commercial bank’s balance sheet”.
“This will weaken their ability to issue loans to corporates to further restricting access to credit for businesses”, he added.
According to the Monetary Policy Committee January 2023 Report, private sector credit growth picked up, partly reflecting continued portfolio rebalancing by banks and revaluation effects on foreign currency denominated credit.
In nominal terms, private sector credit increased by 31.8% in December 2022, compared with 11.2% percent in December 2021. In real terms, however, private sector credit contracted sharply by 14.5%, compared with 1.3% contraction over the review period, reflecting sustained price pressures.
Furthermore, Mr. Kruninger also warned of a social unrest in 2023 if inflation continues to remain high.
“Given the high levels of consumer price inflation that we still seeing rising taxes under the IMF programme and then higher interest rates, we believe that political instability is likely to rise in Ghana in 2023”.
“So you can see that Ghana’s short-term political risk index has been on a downward trend for the past 12 months”, he added.