• GHANA

The IMF offers some breathing space

Accra has secured concessions from the multilateral banks as well as China in exchange for promises on debt

Although West Africa's second largest economy had been expected to receive an International Monetary Fund deal in the coming months, the IMF's 17 May announcement – that its Executive Board has approved the US$3 billion three-year Extended Credit Facility (ECF) requested by President Nana Addo Dankwa Akufo-Addo's government – is a major development that has already boosted the cedi, Africa's worst performing currency in 2022. So, too, is the Fund's disclosure that up to $600 million will be distributed immediately, with a further $600m likely to follow when the Fund completes its first scheduled review in November.

The potential receipt of $1.2bn within six months – notably more generous than the $330m Sri Lanka initially received from its $3bn IMF Extended Fund Facility back in March – though it will also receive a second cash distribution this year – exceeds expectations among sceptics that short-term financing under an IMF deal would be less generous. Should Ghana also receive the over $500m in 2023 World Bank budget and balance-of-payments support (with a further billion or so by 2026) that the ECF programme assumes, along with concessional and commercial financing from other sources triggered by the IMF's seal of approval, embattled Finance Minister Ken Ofori-Atta can welcome a significant reduction to Ghana's short and medium-term financing gap at a time Accra remains unable to access international bond markets.

Just the start
According to IMF calculations, the anticipated IMF and World Bank financing remains a fraction of Ghana's projected $15bn balance of payments financing needs between 2023 and 2026. That will require a massive $10.5bn reduction in external debt service payments over this period, including almost $2.5bn this year, whether via hefty debt haircuts or otherwise. On this front, Ghana still faces a two-pronged challenge to bring its external bilateral creditors and external, mostly-Eurobond-holding, private sector creditors onside.

The France and China-led, Official Creditor Committee set up in May, which incorporates both Paris Club and other bilateral creditors, has indeed provided the 'financing assurances' required by the IMF Executive Board, which the Fund's managing director Kristalina Georgieva has lauded as 'further progress'. The committee has committed to negotiate with Ghana a Memorandum of Understanding (MoU) on debt restructuring under the G20-backed Common Framework.

But it remains unclear whether the MoU will be agreed and finalised – as committed to by Ghana's economic team (although not confirmed by IMF economists as a necessary condition for the second disbursement) – by the time of the first ECF review. Also uncertain is whether China will follow its contribution to facilitating Ghana's 'financing assurances' with further accommodation towards achieving a definitive restructuring deal.

Zambia – which owes significantly more to China than Ghana – represents a counterexample where initial financing assurances from China, facilitating Executive Board approval of Zambia's deal, have been followed by a hard-ball stance from Beijing. At least Chinese officials appear – for now – to have pulled back from suggesting that preferred, multilateral creditors should share the pain. The World Bank's provision of additional financing, which reduces the gap to be filled by external debt restructuring, may have increased the incentive to cooperate.

The Official Creditor Committee's demand that Ghana obtain comparable concessions from private external creditors, 'on terms at least as favourable as those being considered by the creditor committee', is expected under the Common Framework. But, despite assurances from Ghanaian officials that further discussions with external commercial creditors are ongoing, the government's ability to obtain sufficient haircut and other concessions on external commercial debt is unclear.

IMF economists estimate the effective net present value (NPV) cut on Ghana's domestic restructured debts was around 30%, although some analysts calculate that the effective NPV haircut suffered by domestic bondholders is significantly higher. Yet the main baseline for external commercial debt 'comparability' under the Common Framework will be the hit taken by official bilateral creditors. Shrewd commercial bondholders including vulture funds will not want to come out worst (AC Vol 64 No 8, Banks count the cost of debt restructuring).

Both Ghana and the IMF emphasise that returning to the international bond markets is not an immediate objective, and the IMF's Ghana Debt Sustainability Analysis (DSA) 'baseline scenario' assumes that Ghana won't regain such access until 2027. The dominant factor on regaining access will be whether Ghana's finances and debts are restored to sustainability in the longer term, though future market access and borrowing costs could be influenced by the government's decision last December to default on its external debt.

Upgrades?
The ratings agencies – which have issued a series of downgrades to Ghana's domestic and external debts in the past year, are yet to respond publicly to the ECF deal. Back in February when downgrading Ghana's external debts to 'restrictive default', Fitch ratings suggested that an agreement with private creditors and completion of Common Framework restructuring could prompt an upgrade of these debts, should Ghana show 'willingness and capacity to honour' these debts. Given the complexities of Ghana's external debt restructuring, ratings upgrades of its external debts could therefore be some way off.

The opposition NDC has responded to the IMF deal with a multipronged attack via minority parliamentary leader Cassiel Ato Forson, who has gleefully pointed to Ofori-Atta's denials last year that an IMF deal would be sought (AC Vol 63 No 15, Akufo-Addo faces the costs of an IMF deal). He has also warned of the deal's impact on issues such as utility tariffs which – according to the NDC – have risen by 75% since September.

Former finance minister Seth Terkper, whose fiscal policymaking was constrained by the terms of Ghana's 2015-2019 IMF ECF deal, has welcomed the latest deal while warning yet of its 'serious implications' for the next administration. Unstated is whether economic circumstances will be such that this ECF will be extended for a year, as Ghana's last ECF was back in 2017.

Obtaining an IMF deal just 10 months after Ofori-Atta turned to the Fund in July 2022 has given President Akufo-Addo, Ofori-Atta and influential central bank governor Ernest Addison a qualified boost to Ghana's economy. But with tense external creditor negotiations unresolved, and the government still aiming to restructure key domestic debts including 'Cocobills' issued by state-owned cocoa company Cocobod, there are plenty of obstacles on the horizon.

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