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Ghana in Good Position Ahead of IMF Board Meeting on Friday; Debt Restructuring Details and Outcomes

Ghana in good place to secure IMF Executive Board approval following the debt restructuring agreements secured. We share some details of the agreements and outcomes

Ghana has positioned itself favourably for the upcoming International Monetary Fund (IMF) Executive Board meeting on Friday, June 28, by securing debt restructuring agreements with external creditors, including both bilateral and commercial creditors.

These agreements were key conditions needed before the IMF board meeting.

The agreements with external creditors allow the government to clearly understand the amount of debt to be repaid and the timeline, following the completion of domestic debt restructuring.

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In 2022, Ghana defaulted on most of its $30 billion external debt and about $4 billion domestic debt due to the COVID-19 pandemic, the war in Ukraine, and rising global interest rates worsening years of excessive borrowing.

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This situation forced Ghana to seek an IMF bailout. The IMF’s Debt Sustainability Analysis (DSA) deemed Ghana’s debt unsustainable and mandated a plan to reduce the debt to a “moderate” risk level by 2028.

Debt Restructuring Details

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Ghana reached an agreement with two bondholder groups to restructure approximately $13 billion of its debt. Bondholders are expected to forgo about $4.7 billion, providing the government with an estimated $4.4 billion in cash-flow relief until 2026, the end of the current IMF programme.

The Bondholders have two options:

  1. Disco Bond: Offers an interest rate of 5% increasing to 6% after mid-2028 with maturities across three instruments ranging between 2026-2029 and includes a 37% principal haircut.
  2. Par Bond Option: Capped at $1.6 billion with three instruments, the main one paying a coupon of 1.5% and maturing in 2037 with no principal haircut, only a write-down of past due interest.

A separate bond partially guaranteed by the World Bank will see the multilateral lender fully pay the guaranteed portion to holders, while the unprotected part will be treated similarly to the rest of the country’s bonds.

The bondholder groups, the International Steering Committee of Bondholders comprising a group of international asset managers and hedge fund (holding 40% of Ghana’s external debt) and the Regional Steering Committee comprising African banks (holding 15%), have stated that the agreement meets IMF parameters.

In the coming weeks, the government will start a consent solicitation process to get approval from individual bondholders. This process, if successful, would see Ghana emerge from default, followed by a formal launch once final documents are ready.

Earlier, Ghana signed a memorandum of understanding (MoU) with bilateral creditors, including China and France, to restructure $5.4 billion of debt, following an agreement by the Paris Club in January. On the domestic front, GH¢206 billion ($17.5 billion) was swapped for longer-dated, lower-interest debt, resulting in GH¢61 billion in savings.

Benefits and Economic Impact

The debt exchange programmes are expected to reduce Ghana’s public debt-to-GDP ratio from 88.1% at the end of 2022 to 55% by 2028, creating space for additional loans in the future.

This move could bring Ghana out of default, improve its credit rating from “junk” status, and potentially restore investor confidence, leading to the return of foreign investors in the bond and stock markets.

Despite these potential benefits, Professor of Finance John Gatsi noted that the savings from debt restructuring do not represent actual cash available for the government to use. He explained that Ghana did not have the funds to service its loans initially, leading to the default and subsequent restructuring.

The supposed savings mean Ghana is spared the burden of servicing that portion of its debt.

Before defaulting, Ghana used nearly half of its revenue for loan servicing, with interest payments and salaries consuming the entire revenue.

Therefore, the GH¢61 billion saved on domestic debt restructuring did not lead to a significant increase in infrastructure projects, and similarly, the $8 billion savings from external restructuring may not result in noticeable economic changes, according to market watchers.

Meanwhile, the cedi remained stable today on the interbank market, trading between GH¢15.35 and GH¢15.50, the same as yesterday.

The market is largely stable in anticipation of the IMF Board meeting, which could result in $360 million hitting the Bank of Ghana’s account soon.

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