Visual Capitalist now places Ghana at second place on their list of 2022 countries that are most likely to default. Only four countries, namely, Ukraine 10,856 basis points (bps), Argentina (4,470), El Salvador (3,376), and Ethiopia (3,035) have a credit default swap spread that is higher than Ghana’s at 2,071 bps.
El Salvador Has Highest Default Risk
After seeing inflation surge to over 29% in June, Ghana, West Africa’s second-largest economy, is now ranked as one of the countries most likely to default this year, Visual Capitalist’s latest sovereign debt vulnerability rankings have shown. Based on the data, Ghana has been placed 2nd, behind El Salvador (a Central American nation) and El Salvador (the first country to accept bitcoin as legal currency).
As shown by data from Visual Capitalist — an online publisher focused on technology and the global economy, among others — Ghana’s five-year credit default swap spread (CDSS) of 2,071 basis points (bps) is one of the highest globally. The spread of credit default swaps in Ghana is lower than those in Argentina, El Salvador, and Ukraine (all 4,470 bps), respectively.
As explained by Investopedia, CDS is “a financial derivative that allows an investor to swap or offset their credit risk with that of another investor.”
Ratio for Interest Expense
Another metric pointing to Ghana’s likely default is the country’s interest expense as a percentage of the gross domestic product (GDP). According to Visual Capitalist data, with a share of 7.2%, Ghana’s interest expense ratio is the second-highest in the world behind only that of Egypt (8.2%).
When these metrics are combined with the country’s debt as a percentage of the GDP of 84.6%, and a government bond yield of 17.1%, Ghana, which finally agreed to seek the International Monetary Fund (IMF)’s help, looks destined to follow in the footsteps of Sri Lanka, which defaulted on its obligations in May.
The Visual Capitalist rankings show that Tunisia, Egypt, and Egypt are the two African countries with the lowest default risks in 2022. Globally, Tunisia comes in third place, followed by Egypt and Kenya at fifth and sixth. Namibia is the tenth country in the list with the highest default rate.
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