Investment bank Morgan Stanley expects debt-hobbled Ghana to restructure both its domestic and external debt, it said on Thursday.
The bank anticipated the restructuring to result in a "recovery" price for Ghana's bonds of 53 cents on the dollar, or 48 cents on the dollar if local law instruments were excluded from the restructuring.
"Neither restructuring would include a principal haircut," it added.
Ghana started talks with the International Monetary Fund in July for financing aid, but last month President Nana Akufo-Addo called reports of a possible debt restructuring "false rumours".
"The problem that Ghana has is largely due to its unsustainable debt but, more specifically, its interest costs relative to revenue," Morgan Stanley said in an analyst note, referring to how much its spends just the interest on its debt.
"In aggregate, this metric is just shy of 50%, notably larger than its African and ratings peers."
Ghana's dollar-denominated government bonds are at deeply distressed record lows of around 34 cents on the dollar, or a third of their face value, Tradeweb data shows. ,
Its currency, the cedi, is down nearly 60%, making it the worst performing in the world this year and the premium investors now demand to hold its debt over safe-haven U.S. Treasuries has exploded to more than 3,150 basis points (bps). Bankers see anything above 1,000 bps as a default risk. .
Morgan Stanley added that without major spending cuts or a restructuring the country's debt-to-GDP ratio would top 160% by 2027 "spurred by continued yearly double-digit currency depreciation".
Inflation has soared to a 21-year-high despite sharp central bank interest rate hikes that have also done little to slow the cedi's drop.
Ghana's embattled finance minister Ken Ofori-Atta will present the 2023 budget to parliament on Thursday.
Lawmakers from both major political parties have been calling for his removal from office over his handling of what has become the West African country's worst economic crisis in a generation.
With the negotiations with the IMF currently under way, onlookers are eagerly awaiting its assessment of Ghana's crushing debt load.
"We will likely see both overall and external debt being classified as being in distress," Morgan Stanley said. (Reporting by Marc Jones and Jorgelina do Rosario, additional reporting by Rachel Savage, editing by Jorgelina do Rosario and Alex Richardson)