Ghana is going through one of the worst periods in its history. The country’s economy in the short to medium term depends on its ability to renegotiate the payment terms of its US$49 billion debt with its creditors to secure a bailout from the International Monetary Fund (IMF)

Ghana has been shut out of the international capital market due to its unsustainable debts and is seeking the support of the fund to regain credibility in the market.

The country’s credit rating has been reduced to selective default by international credit rating agencies and its securities, all trading at discounts.

So far, Ghana has managed to secure a staff-level agreement with the IMF, pending a board-level agreement which basically depends on how it manages to bring its debts to sustainable levels.

The domestic hurdle

The Ghanaian government has been forced to make substantial changes to its original debt exchange programme introduced on December 5, 2022. Pension funds holding domestic bonds have pressured the government to give in to their demands after workers threatened to go on strike.

The gap created with the exclusion of pension funds had to be filled, and individual bondholders who were initially spared have now fallen victim. They are currently mobilising to challenge the government’s decision through a class action.

The complexity of Ghana’s local bonds is that the prospectuses and the bond agreements do not provide any clear mechanism or methodology for amending their terms. There are no clear Collective Action Clauses (CAC) for the qualifying majority of bondholders to agree to the exchange programme to make their decision binding on dissenting creditors.

The only option available to the Ghanaian government is a negotiated settlement, and this approach is currently not yielding the desired results. The dissenting creditors refusing to participate in Ghana’s domestic bond exchange programme are making it difficult for the country to meet the requirements of the IMF.

The challenge with external creditors

Ghana’s hope of restructuring its debt to meet the IMF’s requirements now hinges on its ability to convince the external creditors made up of some of the world’s powerful creditors to accept new debt repayment terms.

Multi-national investment firms such as BlackRock with assets of about US$30 trillion, Amundi which holds about 2 trillion euros in assets, ABRDN Plc with assets of about £508 billion, among others are part of the bondholder steering committee representing Ghana’s Eurobond holders.

Ghana faces the herculean task of convincing these institutions to accept new debt repayment terms. Unfortunately for Ghana, the external creditors are also lenders to countries in sub-Saharan Africa (SSA) and other emerging economies.

The knowledge that Ghana’s restructuring plan can set a precedent for other debtors in similar situations may lead to the investors going hard on Ghana with the debt restructuring negotiations. This can prolong the process IMF bailout process
The Ghanaian government is yet to formally present a debt restructuring plan to the external creditors, but sources say the government is proposing a 30% cut on the face value of its Eurobonds, a three-year zero-coupon payment, and 30% cut on coupon payments after the three-year freeze on coupons.

Nobody really knows the intention of the external creditors and their motivations regarding Ghana’s external debt restructuring. However, the country’s IMF bailout now lies in the hands of these powerful creditors.

The writer, Francis Kyei, is a Senior Market Analyst at GFX Prime
francis.kyei@gfxprime.com
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