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Thunder! Another country is bankrupt, and many countries are on the verge of bankruptcy! Beware of buyer abandonment, foreign exchange risk.
Dec 30,2022
Ghana today faces a major economic and financial crisis, and the social challenges that come with it. This year, the global economic shock caused by the conflict between Russia and Ukraine has further adversely affected its economy. Various negative external shocks have exposed Ghana to surging inflation, sharp exchange rate depreciation and budget financing pressures. It also poses a risk to the sustainability of its debt.
A few days ago, the Ghanaian government issued a statement saying it would suspend payments on eurobonds, commercial term loans and most bilateral obligations, saying the move was a temporary emergency measure pending further agreements with relevant creditors.Ghana's decision to suspend most of its foreign debt effectively amounts to a default. Ghana's "surrender" is another country, after Sri Lanka, to announce a moratorium on bond payments this year.
Media reports claim that Ghana is now saddled with a debt of about $55 billion, which, according to the latest government statistics, is equivalent to 80% of the country's GDP.
Under the threat of global hyperinflation, Ghana's inflation soared to 40.4 per cent in October and continued to soar to 50.3 per cent in November. Food shortages, food shortages, energy shortages, increased social unrest. The economy is trapped in a vicious circle and solvency is further swallowed up. The government says it uses 70 percent to 100 percent of revenue to pay interest on the debt, media reports said.
Ghana's official currency has depreciated by nearly 60 per cent against the dollar this year,It became the third-worst performing currency in the world this year, after the Zimbabwean and Cuban peso. As a result, the size of Ghana's external debt service swelled from around $30 billion to $50 billion in disguised form in the event of a devaluation of the exchange rate. And the foreign exchange reserves are only a pitiful $7.6 billion. Not enough to cover three months of import costs.
Ghana's moratorium on debt service reflects the perilous state of its economy, and its government was forced to strike a $3 billion million deal with the International Monetary Fund last week. Ghana has been suffering from what has been described as its worst economic crisis in a generation.
Last month, more than 1000 protesters marched in the capital Accra amid soaring fuel and food prices, demanding the president's resignation and denouncing the government's agreement with the International Monetary Fund.
Ghana, known as the "Gold Coast" near the coast of West Africa, has a 30 million population and a rich family background -2 billion ounces of gold, 0.1 billion carats of diamonds, 1.4 billion tons of iron ore and 2 billion barrels of oil. Moreover, Ghana has a huge aluminum mine worth more than $550 billion and 1.5 billion tons, which is buried at a shallow depth and less difficult to mine. Ghana is also the largest economy in Africa, accounting for 30% of the total. Ghana could have lived the life of the local tyrants of Saudi Arabia and Qatar, but the reality is very skinny. The Ghanaian people are in dire straits and the country has fallen into the abyss like Sri Lanka.
Fitch Ratings gave Ghana a rating of CC, two notches above default, while S & P Global Ratings rated it CCC, falling into a junk bond rating.
Moody's downgraded Ghana's credit rating by two notches to Ca, the same rating as Sri Lanka, which is in default.
Argentina, Turkey and other countries are also at risk of default.
Since the beginning of this year, the Fed has violently raised interest rates seven times in a row, by as much as 425 basis points. Next year, or will continue to raise interest rates, the terminal interest rate is currently expected to be 5.1. As a result of the hegemony of the dollar, many countries around the world were swept in to follow the Fed's violent rate hikes. The World Bank lamented that the simultaneous tightening of global monetary and fiscal policy was rare in the world in 50 years.
In this round of dollar interest rate hikes, Sri Lanka was the first to fall and Ghana was the second. In 2023, there should be more heavyweight countries to fall victim. And the possible debt crisis is more prominent.
As the first country to go bankrupt this year, Sri Lanka's debt default has become a reality. At the same time, Argentina, a South American country that has received IMF loan assistance, is also on the verge of bankruptcy. Argentina may be the next Ghana. The Argentine peso has lost nearly 60% of its value against the dollar this year. The scale of foreign debt is as high as 274.8 billion US dollars, accounting for 56% of GDP. And foreign exchange reserves are only $32.5 billion, down $3 billion from the end of last year. In addition, inflation in Argentina is 92.4 per cent, the highest increase in 30 years.
What is even more frightening is that the dark hour has not yet arrived. Against a global macro backdrop of high inflation and high interest rates, overlaid with contagion shocks, the global economy will likely resonate on the same frequency and fall into a larger recession in 2023. And recessions inevitably correspond to shrinking revenues, and sovereign debt defaults may not be one or two in the face of ballooning debt. Turkey, which has a severely exceeded trade deficit, may sound the alarm of default at any time. In addition, more than a dozen emerging market countries such as Egypt, Pakistan, and Ukraine are struggling in the debt quagmire.
According to the latest IMF report, about $237 billion billion of foreign debt in emerging markets is at risk of default, while the World Bank warns that 25 per cent of emerging markets are at or near debt distress and more than 60 per cent of low-income countries are in debt distress. The sovereign debt of emerging market countries is mainly external debt, accounting for more than two-thirds of sovereign debt, and a large part of it is still short-term debt, the high pressure and urgency of debt service is self-evident.
In view of the current world economic environment, with the above countries have air trade business of cargo owners and freight forwarders, do a good job of risk control, beware of destination port buyers abandoned goods, non-payment and other risks, so as to avoid losses caused by money and goods.
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