Fitch Solutions Projects Ghana’s Primary Income Deficit to Remain Low Amid Debt Restructuring
Fitch Solutions predicts a modest primary income deficit for Ghana, reduced by debt restructuring that lowers external debt obligations by $3.5 billion. Interest payments will decrease significantly from 2024 to 2026, and a moratorium on servicing is in place until May 2026. However, U.S. aid cuts may pressure the current account, leading to a contraction in net transfers in 2025.
Fitch Solutions has forecasted a modest primary income deficit for Ghana as a result of ongoing debt restructuring efforts. The recent agreement with commercial creditors has led to the replacement of existing dollar bonds with new instruments, effectively reducing Ghana’s external debt service obligations by $3.5 billion from 2024 to 2026.
These restructuring measures have already reduced interest payments by 1.3% of GDP for 2024, with expectations of further reductions of 0.9% of GDP in 2025 and 0.6% in 2026, based on the original bond terms. Additionally, the accord with official creditors has established a moratorium on debt servicing until May 2026.
As a result of these developments, Fitch Solutions projects that Ghana’s primary income deficit will remain at a contained level of 3.1% of GDP, considerably lower than the five-year average of 5.5% pre-default. However, Ghana’s current account is anticipated to experience pressure due to reductions in U.S. international aid.
The United States, which supplies approximately 20% of Ghana’s total aid receipts, has announced a substantial 90% cut in USAID contracts. This decision is expected to adversely affect Ghana’s secondary income surplus. While Fitch Solutions anticipates an uptick in remittance inflows and aid from alternative donor countries, these are likely insufficient to completely counterbalance the significant decline in U.S. aid. Furthermore, the firm forecasts a contraction of 3.0% in net current transfers by 2025.
In summary, Fitch Solutions indicates that Ghana’s primary income deficit is expected to remain low due to effective debt restructuring, which includes significant reductions in external debt service obligations and interest payments. Nonetheless, the anticipated reductions in U.S. aid may put strain on the current account, resulting in decreased secondary income surplus and net transfers during the upcoming years.
Original Source: www.ghanaweb.com
