Fitch Solutions forecasts a modest primary income deficit of 3.1% of GDP for Ghana as a result of successful debt restructuring. This includes a reduction in external debt obligations by $3.5 billion over the period of 2024 to 2026. Challenges are noted with the impending cut in US aid, impacting the country’s current account and projected current transfers.
Fitch Solutions has issued a forecast indicating that Ghana’s primary income deficit is likely to remain modest due to the ongoing debt restructuring initiatives. The latest restructuring agreement with commercial creditors involves the substitution of existing dollar bonds with new financial instruments, which is anticipated to decrease Ghana’s external debt service obligations by $3.5 billion for the period from 2024 to 2026.
As a result of these adjustments, the firm expects a notable reduction in interest payments by 1.3% of GDP in 2024, along with anticipated further reductions of 0.9% in 2025 and 0.6% in 2026, in comparison to the terms of the original bonds. Additionally, an agreement with official creditors has facilitated a moratorium on debt servicing, extending until May 2026.
Fitch Solutions forecasts that Ghana’s primary income deficit will be contained at 3.1% of GDP, which is significantly lower than the five-year pre-default average of 5.5%. Nevertheless, the situation surrounding Ghana’s current account remains precarious due to forthcoming reductions in international aid from the United States.
The US, which typically accounts for approximately 20% of Ghana’s total aid receipts, has announced a substantial 90% reduction in USAID contracts. This decision is expected to adversely affect Ghana’s secondary income surplus, although increases in remittance inflows and assistance from other donor nations may provide some support, albeit insufficient to fully compensate for the reduction in US aid. Consequently, a contraction of 3.0% in net current transfers is projected for the year 2025.
In summary, Fitch Solutions projects that Ghana’s primary income deficit will be reduced to 3.1% of GDP due to ongoing debt restructuring efforts, significantly lower than its historical average. However, challenges remain, particularly with the anticipated decline in US aid affecting the current account and secondary income surplus. These factors underscore the need for cautious economic management moving forward.
Original Source: www.ghanaweb.com
