Can IMF bailout stop Ghana's debt vulnerability?

Ghana's recent decision to engage with the International Monetary Fund (IMF) for a bailout has sent shockwaves through the market, causing a surge in the nation's Eurobonds. Egie Akpata, the Chairman of Skymark Partners, shared insights on this unexpected development during a CNBC Africa interview. While Ghana's move has raised questions about its debt vulnerability, Akpata emphasized the contrasting dynamics between Ghana and Nigeria's fiscal situations. Despite Nigeria's significant economic size compared to Ghana, Akpata highlighted the critical differences in their debt structures. Ghana's relatively high foreign currency debt poses a unique challenge, underscoring the urgency of seeking IMF assistance. In contrast, Nigeria's fiscal woes stem from unresolved issues like petroleum subsidy removal and forex market reforms, prerequisites that the IMF would likely require the country to address. Therefore, the possibility of Nigeria following Ghana's path to the IMF remains uncertain, contingent on its ability to tackle fundamental fiscal reforms. The impact of Ghana's IMF engagement reverberated in global markets, sparking concerns about its potential spill-over effects on other African countries. Akpata pointed out the notable spike in Nigerian Eurobond yields over the past months, partly attributed to broader market fears stemming from countries like Sri Lanka. With Ghana's decision shedding light on the severity of debt vulnerabilities in the region, investors are closely monitoring the risk dynamics across African sovereign bonds. Ghana's macroeconomic stability has come under scrutiny due to ongoing currency depreciation, soaring inflation rates nearing 30%, and a substantial 450 basis points hike in interest rates. Akpata expressed concerns over the daunting macro challenges facing Ghana, suggesting that the government's recourse to the IMF reflects a sense of urgency and a perceived lack of alternative options. While the IMF's intervention may offer short-term relief, potential implications such as currency adjustments and bondholder impacts loom large, raising anxieties about broader contagion effects in neighboring countries like Nigeria. In conclusion, Ghana's pivot towards the IMF underscores the gravity of the country's economic predicament. As stakeholders await further developments on the bailout negotiations, the ripple effects of this decision on regional economies remain a focal point of concern. With macro stability at stake, Ghana's engagement with the IMF signals a pivotal juncture in the country's ongoing efforts to address its debt vulnerabilities and restore financial equilibrium.