A recent report by Fitch has highlighted that Ghana’s economy continues to grapple with substantial financing difficulties despite the government’s debt restructuring efforts.
Consequently, the rating agency has maintained Ghana’s rating at a level that signifies the country is effectively in default on its foreign debts.
The rating, termed ‘RD’ or ‘Restricted Default,’ indicates that Ghana has missed payments on certain international loans, notably its Eurobonds.
Nevertheless, the report acknowledged that the country is striving to restructure its debts and collaborate with international creditors to enhance its financial standing.
Approximately $478 million of this sum is projected to be paid to Eurobond holders with whom Ghana recently finalized a debt restructuring agreement. “We are fully aware of the upcoming payments, and our cash flow projections show that we have made provisions for this specific obligation.”
Dr. Addison confirmed, “Indeed, we have built reserves to manage some of these substantial payments as part of our financial planning.”
Ghana’s gross international reserves increased to $6.86 billion in the first half of the year, up from $5.34 billion during the same period in 2023. Fitch has also upgraded Ghana’s rating to ‘CCC’ for its capacity to repay debts in its local currency.
This suggests that, while Ghana is struggling with international debts, it is somewhat better positioned to meet its domestic financial obligations.
The report points out that Ghana is actively negotiating with its lenders and working on strategies to reduce its debt burden, which may enhance its financial stability in the future.
As of June 2024, Ghana’s total debt was GH¢742.0 billion, equivalent to 70.6% of GDP.
Ghana’s economy is burdened with unsustainable public debt, prompting the country to seek assistance from the International Monetary Fund (IMF).
Under a three-year program with the IMF, the government has been tasked with restructuring both domestic and external debt, aiming to reduce the debt-to-GDP ratio to 55% by 2026.
The Domestic Debt Exchange Programme, initiated in December 2022, involved swapping old bonds valued at approximately GH¢82 billion for 12 new bonds with lower coupon rates and extended tenors.
Since then, the government has settled payments for all local individual bondholders who opted out of the DDEP, with payments to local institutional bondholders still ongoing.
During the mid-year budget presentation, Finance Minister Dr. Mohammed Amin Adam reported that the government had paid around GH¢12 billion to bondholders participating in the DDEP, reflecting its commitment to the program.
He noted that the government had completed two coupon payments and scheduled a third payment of GH¢6.1 billion for August. This contributed to Fitch’s improved rating on Ghana’s ability to service domestic debt.
Externally, the government recently signed a Memorandum of Understanding with the Official Bilateral Committee to restructure about $5.1 billion in bilateral debts.
The country is awaiting formal agreements from individual countries. On the commercial front, Ghana has reached a deal with the Eurobond holder committee to restructure approximately $13 billion in bonds, involving a 37% reduction in principal and a suspension of coupon payments until 2026.
The debt restructuring involves $4.7 billion in cancellations and $4.4 billion in debt service savings from 2023 to 2026.
Later this month, the government plans to launch a consent solicitation and exchange memorandum in the international capital market. This will allow it to seek Eurobond investors’ approval to amend the terms of the bonds.
Two new bond options are available: the PAR bond, with a limit of $1.6 billion, and the DISCO bond, which offers three new instruments (Bond short, Bond long, and Down Payment Bond). Consenting holders will receive a PDI Bond and a consent fee.
Fitch expects the consent solicitation to be launched soon and the Eurobond exchange to be completed by September 2024, though delays might occur due to ongoing negotiations regarding the International Development Association (IDA)-partially guaranteed bond.
Fitch noted, “We anticipate the completion of the external debt restructuring by the end of 2024.”
Regarding Eurobond repayments, Fitch’s affirmation of the LTFC IDR at ‘RD’ reflects that Ghana remains in default on its Eurobonds following the lapse of the grace period for a missed coupon payment in February 2023.
At a recent Monetary Policy Committee press briefing, Bank of Ghana Governor Dr. Ernest Addison confirmed that the country has sufficient reserves to meet its Eurobond repayment obligations in the second half of the year.
Despite the suspension of coupon payments until 2026 as a result of negotiations, Ghana is expected to make principal payments. IC Africa Research estimates that Ghana will make debt service payments between $600 million and $800 million this year.
About $478 million of this amount is expected to be paid to Eurobond holders who the country recently concluded a debt restructuring deal with. “We are very much aware of the upcoming payments, if you look at the cash flow projections, you would see that provisions have been made for this particular payment.”
So yes, we have built up reserves to meet some of these lumpy payments in the outlook,” Dr Addison said.
Ghana’s gross international reserves increased to $6.86 billion in the first half of the year, up from $5.34 billion during the same period in 2023.