Absa Bank, a Pan African bank, has predicted that the free fall in value of the Ghanaian cedi will continue in the remaining months of the year and thus, will end the year at the rate of about GH¢12 to the US dollar.

Absa Bank made this known in its Sub-Saharan Africa Daily report. According to the bank, towards the end of the year, the dollar would be under persistent demand which would weaken the cedi.

“We expect the currency to weaken further and maintain our view that given persistent foreign exchange demand, a year-end close of around GH¢12/ one US dollar remains likely.

“While concerns about a possible restructuring of local debt have been top of mind for several months given the unsustainable debt trajectory, these mounted this week following unconfirmed reports that a restructuring was being considered by the Ghanaian government.”
Absa Bank

Possible Debt Restructuring

Touching on reports of possible debt restructuring, Absa Bank stated that despite the hitherto unconfirmed reports of a possible restructuring of domestic debt, it believed that any decision on this important issue would only be taken once authorities have discussed it with the Fund. That notwithstanding, the bank said the situation could further weaken the cedi.

“For reference, the IMF in its recent staff report on Zambia warned that while foreign investors held 26 per cent of Zambia’s domestic debt stock, the Zambian financial sector held the bulk of domestically issued debt and, in particular, these securities accounted for almost one-third of banking sector assets.

“The Fund, thus, concluded that any restructuring of this debt ‘could trigger significant financial instability, potentially requiring public resources to support the sector. It further warned that it would also raise broader economic risk by weakening market and business confidence, triggering capital outflows and reducing the private sector’s access to finance.”
Absa Bank

It can be recalled that Fitch Director, Mahin Dissanayake, sounded a warning that Ghana is facing a possible sovereign debt default, and that any kind of debt restructuring could threaten the local banking sector. Dissanayake added that with Ghanaian banks holding large volumes of government securities, ‘debt distress is going to put a lot of stress on the banks’. He called reports that Ghana is planning to restructure domestic debt ‘highly unusual’ as such a plan would likely cause significant problems for local banks.

Dissanayake cautioned that if there was, for example, a 30 per cent haircut, it would make at least several banks insolvent’ and that other financial institutions such as insurance companies, pension funds and asset managers could also be hard hit.

Meanwhile, the cedi is currently hovering around GH¢10.50 to one US dollar in the forex bureau. However, in the interbank market, the cedi is trading at GH¢9.55. It has depreciated by about 40 per cent against the dollar since the beginning of 2022. It started the year at about GH¢6.45 to the American greenback.