The Ghana Cedi Is Now Performing Well Against The Dollar

Bloomberg has identified the Ghanaian Cedi as the currency that has performed the best against the US dollar this week.

After being compared to roughly 150 other currencies from around the world, the cedi emerged as the currency that performed the best against the dollar this week (for the past five days).

The currency gained 10 percent against the dollar after losing more than 50 percent of its value throughout the year. The cedi-to-dollar exchange rate reached $1 to over GH15 this year, but it is currently slightly above GH12.50 to the dollar.

When Ghana’s currency was ranked as the worst performer against the US dollar approximately three months ago, the Sri Lankan rupee was relieved of this unenviable position. Due to the Cedi’s unchecked decline against the USD, Ghana’s long-term bonds have received at least seven downgrades from three international rating agencies in less than 11 months this year.

The Minister of Finance, Ken Ofori-Atta, stated in the 2023 budget statement that Ghana’s public debt increased by GH93 billion, or approximately $7.2 billion at the current interbank rate, as a result of the Ghanaian cedi’s depreciation in less than 11 months this year.

Ghana government officially announced the “Domestic Debt Exchange” debt operation on December 4, 2022, outlining the nature of debt restructuring for domestic creditors. This is to clear a path for the IMF bailout package, which is expected to cost $3 billion.

The Finance Minister stated,

Under the programme, domestic bondholders will be asked to exchange their instruments for new ones. Existing domestic bonds as of 1st December 2022 will be exchanged for a set of four new bonds maturing in 2027, 2029, 2032 and 2037.

The annual coupon on all of these new bonds will be set at 0% in 2023, 5% in 2024 and 10% from 2025 until maturity. Coupon payments will be semi-annual.”

“The Government of Ghana has been working hard to minimise the impact of the domestic debt exchange on investors holding government bonds, particularly small investors, individuals, and other vulnerable groups.” As a result, “Treasury Bills are completely exempted and all holders will be paid the full value of their investments on maturity.”The Finance Minister said.

Additionally, he asserted that President Akufo-Addo’s earlier statement that “there will be NO haircut” on the principal of bonds and that bondholders would not be impacted was accurate.

Ghana’s sovereign debt portfolio consisted of GH467.4 billion ($48.9 billion) as of September 2022, with a domestic portion of GH195.7 billion ($20.5 billion) and an external portion of GH271.7 billion ($28.4 billion).

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As investors await the government’s decision regarding the nature of its external debt restructuring, interest payments on loans are expected to cost GH52.6 billion in the 2023 fiscal year, making them the largest expenditure line item for the following year. Compared to the allocation for the budgetary year 2022, this is an increase of approximately 40.6%.

Even though Finance Minister Ken Ofori-Atta stated in his announcement of the Debt Exchange Program that “external debt restructuring parameters will be presented in due course,” his deputy John Kumah stated on November 24, 2022, “domestic bondholders will receive zero interest for 2023, 5% interest in 2024, and 10% interest in 2025; In addition, full interest payments to holders of domestic bonds will not begin until 2026.

“Government is proposing a 30% haircut on both principal and interests for foreign bondholders” takes place simultaneously, according to Mr. Kumah.