Fitch Solutions Projects Modest Primary Income Deficit for Ghana Amid Debt Restructuring

Fitch Solutions forecasts a modest decline in Ghana’s primary income deficit, projecting it at 3.1% of GDP, aided by a restructuring agreement that lowers external debt obligations by $3.5 billion. However, a substantial 90% reduction in US aid contracts is expected to adversely affect the country’s secondary income surplus and net current transfers.

Fitch Solutions has predicted a modest primary income deficit for Ghana as a result of ongoing debt restructuring efforts. The restructuring agreement with commercial creditors has replaced existing dollar bonds with new financial instruments, reducing Ghana’s external debt service obligations by $3.5 billion from 2024 to 2026.

The UK-based firm noted that this restructuring will lead to a decrease in interest payments by 1.3% of GDP in 2024, with additional reductions forecasted at 0.9% of GDP in 2025 and 0.6% in 2026, relative to the original bond terms. Furthermore, Ghana has secured a moratorium on debt servicing with official creditors until May 2026.

Consequently, the projected primary income deficit for Ghana is expected to remain at 3.1% of GDP, a notable decrease from the five-year pre-default average of 5.5%. However, Ghana’s current account may still face challenges due to a reduction in international aid from the United States.

The US, which accounts for approximately 20% of Ghana’s total aid, recently announced a significant 90% reduction in USAID contracts, impacting the nation’s secondary income surplus adversely. Despite forecasts for increased remittance inflows and aid from other countries, these gains are unlikely to fully counteract the significant drop in US aid. Fitch Solutions anticipates a 3.0% contraction in net current transfers for 2025.

In summary, Ghana’s primary income deficit is expected to remain modest due to substantial debt restructuring, which reduces external obligations significantly. However, challenges remain as the US cuts its aid drastically, potentially diminishing the nation’s financial support from external sources, thereby exerting pressure on overall economic stability in the coming years.

Original Source: www.ghanaweb.com