Ghana’s Finance Minister, Mr. Ken Ofori-Atta, announced on Wednesday, November 15, that the country has received proposals from two groups of bondholders regarding its commercial debt, specifically Eurobonds.
This development, he stated, has bolstered Ghana’s confidence in progressing towards a Memorandum of Understanding (MoU) with external creditors, aiming to secure a second tranche of US$600 million from the International Monetary Fund (IMF).
During the presentation of the 2024 budget to Parliament on the same day, Mr. Ofori-Atta disclosed that the government is actively reviewing these proposals. The expectation is to move towards a resolution in accordance with the principle of comparability of treatment.
“It is envisaged that, in the coming weeks, extensive negotiations with both groups will commence and ensure that we achieve the targets set under the IMF/World Bank Debt Sustainability Framework. We are hopeful of a year-end resolution,” he said.
“An agreement in principle on the restructuring parameters is expected to be reached in the coming week. This will be formalised in an MOU between the Government and the Official Creditor Committee (OCC),” he noted.
In adherence to the country’s specified criteria, which includes a haircut ranging from 20 to 40 per cent, a maximum interest rate of five per cent, and a maturity period not exceeding 20 years, this development pertains to the ongoing discussions on Ghana’s external debt restructuring.
The Finance Minister emphasized that the successful completion of this restructuring would contribute to enhancing the country’s debt trajectory. Ultimately, it is anticipated to support Ghana in achieving its goal of reducing the debt-to-Gross Domestic Product (GDP) ratio to 55 per cent by 2028.
“Total public debt has declined from 73.1 per cent of GDP at the end of 2022 to 66.4 per cent of GDP as of September 2023. The completion of external debt restructuring is expected to further improve Ghana’s debt situation,” he said.
The IMF Mission’s Staff Level Agreement (SLA) highlighted Ghana’s successful fulfillment of all six Quantitative Performance Criteria (QPCs), two of the three Indicative Targets, and six out of seven Structural Benchmarks as of September 2023.
These targets encompassed various aspects, including a floor on net international reserves, a ceiling on the primary balance on a commitment basis, restrictions on contracting non-concessional loans/guarantees, avoidance of collateralized borrowings, and prevention of the accumulation of external debt service arrears.
Among the achieved indicative targets were a floor on social spending and a floor on non-oil public revenue. Additionally, the goal of zero net accumulation of payables extension was realized, largely influenced by ongoing negotiations with Energy Sector Independent Power Producers (IPP) on legacy debt.
The six met structural benchmarks included the formulation and publication of an arrears clearance and prevention strategy, a financial sector strengthening strategy, and a strategy for reviewing earmarked (statutory) funds. Other accomplishments comprised the preparation and publication of a medium-term revenue strategy, a strategy for the indexation of Livelihood Empowerment Against Poverty (LEAP) benefits, and Bank of Ghana approval of capital-building buffer plans for banks.
However, one structural benchmark went unmet, pertaining to the preparation and publication of an updated Energy Sector Recovery Plan, which was initially expected to be completed by the end of June 2023.
Ghana initiated a request for debt treatment under the G20 Common Framework for Debt Service Suspension Initiative (CF-DSSI) on December 13, 2022. Bilateral creditors formed the Official Creditor Committee (OCC) on May 12, 2023, through the Paris Club to address the restructuring of bilateral debt.
“Action is needed from the creditors’ side; Ghana has done its fair share, and it’s for creditors to take the next steps, and we’re not going to ask the Government to do more adjustment because creditors haven’t asked either,” says Mr Abebe Aemro Selassie, Director, African Department, IMF.