Ghana turned to the International Monetary Fund for help in July as its balance-of-payments position deteriorated and hundreds of people took to the streets to protest against economic hardship.

An IMF team is expected to visit Ghana next week.

The government has been struggling to slow galloping inflation, reduce the public debt and revalue the local currency.

“Default is a real possibility,” Fitch Senior Director Mahin Dissanayake said during a press briefing in London yesterday.

“Ghanaian banks…hold large volumes of government securities, so debt distress is going to put a lot of stress on the banks,” he said. “The operating environment is looking very fragile.”

Ghana’s debt stock has more than doubled since 2015, steadily climbing from 54.2 per cent of Gross Domestic Product (GDP) that year to 76.6 per cent at the end of 2021, according to government data.

Interest payments have been the government’s largest annual expense since 2019, and were its second-largest expense for five straight years prior to that, finance ministry figures show. domestic debt accounts for more than 80 per cent of that.

Dissanayake said that reports that Ghana is planning to restructure that local currency debt as part of an IMF deal were “highly unusual”, and that going through with such a plan would likely cause significant problems for local banks.

“We estimate that if there was a 30 per cent cut, that would make at least several banks insolvent,” he said.

“It’s not just the banking sector that would be affected but also insurance companies, pension funds, asset managers – anyone who holds government securities,” he added.

Ghana’s sovereign dollar-denominated bonds dropped as much as 1.6 cents in the dollar on Wednesday with debt maturing in 2025 and 2026 suffering the biggest declines, Tradeweb data showed. However, much of the losses occurred in early trading, with investors ditching riskier assets in favour of safe havens amid rising tensions between the West and Russia.

Many of Ghana’s international bonds are trading at record lows with the longer-dated maturities changing hands for less than 40 cents.