Moody’s and Fitch: Ghana’s big tormenters
International rating firm, Moody’s Investors Service, has downgraded Ghana’s long-term issuer and unsecured debt rating to Caa2 from Caa1 and placed the ratings on review for downgrade of Ghana’s economy.
What a shame!!!! Last Friday, September 30, 2022 was the close of the fiscal year for the US federal government.
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If you’re not familiar with the term, the ‘Fiscal Year’ refers to the government’s official accounting period. It starts on October 1, and ends the following September 30. And everything from the federal budget to the Supreme Court’s case schedule is based on the Fiscal Year.
Fiscal year
So, let me bring to light figures of the national US debt and based on the figures just released, the US national debt has now reached nearly $31 trillion as of the close of the fiscal year last Friday (In Ghana cedi equivalent of GH¢9.63 Bank of Ghana rate to a dollar on October 5, 2022 it is GH¢298.53trillion).
At the start of the fiscal year back on October 1, 2021, the national debt in US was $28.4 trillion. So, over the course of the past 12 months, the debt increased by a whopping $2.5 trillion. That’s the second highest annual increase in the US national debt EVER, after the $4.2 trillion increase in the 2019-2020 fiscal year during the pandemic.
Now, a $2.5 trillion increase in the national debt is terrible, and under normal circumstances alarm bells should be sounding from coast to coast. However, there’s actually something more worrisome going on with the debt.
Bonds
Remember that whenever governments borrow money, they do so by issuing some form of government bond. A bond, just like a loan, is a type of IOU (I Owe You). One of the key differences, however, is that a bond is a form of financial security, which just like stocks, can be easily bought and sold by international investors around the world.
In Ghana, one must always use her natural resources for loans but for the West it is always bonds. The West got to know how smart our finance minister is, by the way he was copying and executing the same strategies they implement and this made them very unhappy and started attacking our economy so unjustly. Why do we have to use our natural resources for debt whilst the West only use Bonds!!! Shame on the West and their credit rating joke!!!
This means that, every year, approximately 20 per cent (one-fifth) of US government bonds will mature and need to be repaid. It’s actually worse than that; due to various complexities in treasury issuance, the actual amount of bonds that need to be repaid is much higher.
Based on data that was just released last Wednesday, in fact, the US federal government repaid $15.7 trillion worth of bonds in the most recent Fiscal Year.
More debt
You might be wondering-- how on earth did the US government come up with that much money? Easy. They just issued more debt. In a way it is like the government is paying off its credit by borrowing from Yaw to pay off Kwame who are brothers from the same father but of different mothers.
When I got the data and examined it with fairness and open mindedness, I got to know that, our Financial Minster, Ken Ofori- Atta, got his superior education from US. With the strategy I believe he’s implementing the “net” debt hasn’t changed; they pay off X amount of debt by issuing X amount of new debt.
This worked just fine as long as interest rates remained at record lows. US economy runs on debts. This is the normal thing to do in the West in order to run their economy and moreover, Moody and others are completely aware of this very practice.
However, they have turned a blind eye to it. The West acts like small gods for Africans (Ghana) as though Ghanaians are inanimate and are totally unqualified, unworthy and banned from practicing this system.
The problem is that interest rates have risen a lot since 2020. The two-year treasury yield is now 4.2 per cent, and rising. In other words, the new $50 billion issuance will cost the government an additional $2 billion per year in interest ($50 billion x 4 per cent). Now imagine this problem for the ENTIRE $31 trillion US debt.
Rates in the US are already, on average, around 3- 4 per cent higher than they were a few years ago. And if the average interest rate on the national debt increases by just 3 per cent, that means the government will owe an EXTRA $1 trillion per year, just in INTEREST.
Total interest
In case you’re wondering, total interest in the fiscal year that just ended last Friday is an unbelievable $706 BILLION for the “superpower”. If rates keep rising, annual interest payments could increase to nearly $2 trillion.
This is a real crisis brewing and the people in charge are deliberately ignoring it. Do you know why? I Kwasi Kokuro can boldly tell you, all the problems we have in Ghana about debts (dollar) is because our leaders can never practice exactly what the West are doing and most importantly, our leaders lack knowledge on how to go around this, not that they are not smart. Far from that.
We Africans for so many years until now trust what the West taught us and we believe wholeheartedly what they taught all of us in school, thinking it is the right thing, but from where I sit, this is a mere fallacy. With all the impressive CVs which our leaders have, they can NEVER figure out how to go about this and it is not about you having the whole world’s natural resources. Wake Up!!!
One cannot use natural resources which is MONEY to pay debt. All currencies in the world, bonds and many more are not MONEY but debt. Why do the Western governments never use their natural resource to pay their debts but always use bonds? Since independence, not a single leader and its administration had people who had superior knowledge about MONEY!!!
It is not about leadership and corruption; after all the West are not angels!!! If you get too smart like Mr Ofori-Atta on bond sand debt, be ready to be sabotaged by the West since this angers them and they will use their credit system to downgrade your economy so that, the country’s bond (credit) becomes worthless as punishment for trying to use their strategies.
It is no surprise that the workings of the West are only understood by few amongst millions.
