WHAT was recently one of the world’s fastest-growing economies is now a cautionary tale of how tens of billions in foreign investment and infrastructure prospects can evaporate so suddenly.
Ghana’s hopes for a futuristic, 5,000-seat national cathedral have been dashed as the nation’s currency is the world’s worst this year amid record inflation and the project’s price tag has quadrupled from $100 million, says analysts at Bloomberg.
Credit rating agencies have downgraded it into junk status and the World Bank projects the country’s total public debt will hit 105 percent of GDP by the end of this year.
It needs to repay $3.5bn in loans and bonds in 2023, according to data compiled by Bloomberg — a little more than it is asking for from the International Monetary Fund.
‘The West African economy’s sad tale is a warning sign for governments worldwide — especially frontier markets — that are grappling with debt interest payments that drain the coffers as Covid-era bills come due, threatening to send more to the IMF for bailout negotiations, say Bloomberg analysts Neil Munshi, Ekow Dontoh, Selcuk Gokoluk and Ana Monteiro.
At least 15 of the 72 emerging markets in a Bloomberg index including Ethiopia, Pakistan and Tajikistan now have dollar debt trading at distressed levels, after Russia’s invasion of Ukraine fueled global energy and food-price inflation. That’s meant more central bank tightening that shrinks liquidity for junk-rated nations.
Underscoring the fear, a new report from a think tank backed by the Bill & Melinda Gates Foundation finds developing nations may need to find as much as $2.5 trillion over five years to meet external debt-service costs as interest rates rise and poorer countries struggle to refinance borrowings.
‘Current costs of funding make debt service hard to sustain, with an expected peak in 2024-25,’ according to the authors of a paper based on the model titled The Coming Debt Crisis. ‘If such conditions were to hold, a significant liquidity crisis would quickly turn into a widespread solvency crisis.’