Ghana’s external debt rework: Deal or no deal?

Ghana is ‘dollar hungry’ as it begins another round of complex debt rework exercise, a key step in obtaining financing assurances to support its Extended Credit Facility Programme being supervised by the IMF.

The country’s prolonged economic crisis means the West African nation must cut about $10.5 billion of external debt which exceeds $30 billion. Debt rework headache for the Black Star of Africa comes in two forms: bilateral and commercial.

An agreement in principle with bilateral creditors in January 2024 was enough to meet the needed financing assurance to unlock the second disbursement of $600 million under the $3 billion IMF programme. Ghana has so far drawn $1.2 billion for the package and is hoping to secure additional financing.

In fact, Ghana has begun another debt restructuring dance toward securing the third tranche of $360 million after reaching an IMF Staff-Level Agreement.

Beyond this agreement, there’s a big hurdle for the West African nation to cross as it works towards obtaining key financing assurances from its external bilateral creditors.

With this condition in full swing, it means Ghana has not yet completed the second review to trigger the release of the $360 million.

The Fund has stressed that to ensure the timely completion of the review, Ghana and its official bilateral creditors need to reach an agreement on a Memorandum of Understanding for a debt treatment consistent with the agreement in principle reached in January 2024.

The key focus is getting MoUs signed with Ghana’s Official Creditor Committee but also keeping an eye on the commercial creditors.

Official sources say Ghanaian authorities have been in a debt rework negotiation with its international bondholders since March 2024.

Talks have taken a different turn after the IMF indicated that the deal Ghana reached with its external bondholders would not fit its debt sustainability parameters, which set out how much debt it thinks Ghana can afford.

A regrouping was done right after the big rejection as Accra’s original request of up to 40% haircut on commercial bonds keeps reducing making it difficult to meet the Fund’s acceptable threshold.

The bondholders are now in two groups – The first is the “international” group of Western asset managers and hedge funds and another one includes regional African banks.

The regional African bondholder group has also rejected part of the proposed rework, including an option to retain the original value of the bonds with a longer maturity and lower coupon.

Currently, Ghana has not secured any concrete deal with specific MoUs detailing the amount of release being dished out and that has really complicated negotiations for the West African as it races to quench its forex thirst.

Well, the IMF’s message to Ghana is very simple, if you want $360 million in forex support, then talk to your external creditors to give you the needed financing assurances in line with the programme outlines. Without this, it will be very difficult for Ghana to withdraw the scheduled $360 million. If Ghana presents any half-baked debt rework deal to the Fund, it will surely reject it!

But there’s a glimmer of hope on the horizon for countries like Ghana facing debt crises, as the IMF steps into the debt restructuring arena to provide assistance.

The IMF’s executive board has supported a crucial change that grants it more flexibility to aid nations in crisis, even while ongoing debt renegotiations with major creditors like China are underway.

This change focuses on reforming the IMF’s Lending Into Official Arrears (LIOA) policy, which determines when it can lend to a country owing money to another IMF member. The IMF announced late on Tuesday that its board has approved “reforms to enhance the IMF’s ability to support countries undergoing debt restructurings.”

A significant revision allows the IMF to lend to a country without a debt agreement with one or more of its bilateral creditors, provided that additional safeguards are in place.

The IMF emphasized the lengthy process for countries like Chad, Zambia, Sri Lanka, and Ghana to secure creditor assurances following defaults, showcasing the need for further progress.

In its statement, the IMF stressed how it had taken Chad 11 months to move from its initial IMF “staff-level agreement” following its default to securing the creditor assurances needed for approval of IMF financing.

In the case of Zambia, talks took 9 months to reach this milestone, Sri Lanka six months, and Ghana 5 months, but more progress is needed.

This proposal from the IMF Executive Board presents a promising outlook for Ghana down the line.

However, for immediate support from the International Monetary Fund and its allies, Ghanaian authorities must seize this moment to finalize agreements with external creditors before the conclusion of the ongoing Spring Meeting in Washington DC.

Whatever the case, Ghana will be hoping to leave Washington with a deal in hand!

About the writer:

Isaac Kofi Agyei is a Data & Research Analyst/Journalist at JoyNews based in Accra, where he covers mostly finance, economics, banking, and politics across Ghana and West Africa, from detailed analytical reports on all key issues to debt crises to IMF programmes.

He also serves as the data and research correspondent for SBM Intelligence, an Africa-focused market/security leader in strategic research, providing actionable analyses of West Africa’s socio-political and economic landscape.

With his solid academic background in economics and statistics and additional training from credible institutions such as the UNDP, Afrobarometer, Ghana Statistical Service, and a host of others, Isaac has honed his skills in effective data storytelling, reporting, and analysis.