• GHANA

Growth boost may speed up debt accord

Accra has sent proposals to commercial creditors holding $13 billion of bonds after IMF confirms higher industrial outturn

A few more lights are flickering at the other end of Ghana’s US$44 billion debt tunnel. First, the country’s gross domestic product grew 4.7% in the first quarter of this year, driven by the fastest expansion of the industrial sector in five years according to the government’s statistical services on 18 June.

Ghana’s recent economic performance has exceeded the expectations of the IMF, which has a $3bn bailout agreement with the government. The IMF bailout is contingent on the government restructuring most of its $44bn public debt after suspending external repayments in December 2022.

The GDP growth for 2023 is at 2.3% better than expected while non-oil revenues, government spending, social protection programmes and foreign exchange reserve levels remain on target. Substantive improvements in the primary fiscal balance puts Ghana on the path towards a 2024 primary surplus, and key structural reforms are being made.

We hear those developments encouraged the IMF to conclude a positive second review of Ghana’s macro-economic adjustment programmes. The IMF board is due to vote on the next disbursements on 28 June.

With this brighter picture, the Ministry of Finance’s negotiating team submitted an new set of proposals to the commercial creditors to restructure $13bn of Eurobonds. An early proposal to the bondholders was suspended in April because it failed to meet the IMF’s debt sustainability criteria. The stronger macro-economic performance makes agreement over this plan more likely.

The other ingredient boosting the chances of a deal with the bondholders (which include Abrdn, Amundi, BlackRock and Greylock Capital Management) is the agreement on a Memorandum of Understanding (MoU) between Ghana and its official, bilateral, creditors comprising the Official Creditor Committee (OCC) on 12 June. This follows Ghana's 'agreement in principle' with these creditors on 12 January.

Finalisation of the official creditors deal still requires Ghana and each OCC member to complete bilateral agreements – including the co-chairs China and France. The finance ministry’s claim that the MoU represents an ‘extraordinary milestone in Ghana’s debt restructuring journey’, though hyperbolic, reflects the importance of the second main prong – after the 2023 Domestic Debt Exchange Programme (DDEP).

The lessons from Zambia, where major concessions to external bondholders initially derailed Zambia’s 2023 negotiations with official creditors, loom large (AC Vol 65 No 12, Inching towards the end of the tunnel). Earlier this month Zambia's external bondholders met to approve debt restructuring which started in 2021. Both Ghana and Zambia were early entrants into the G20’s much-criticised Common Framework for debt treatments. And both have been snared in tortuous negotiations with rival groups of creditors.

The IMF does not require material progress on a bondholder deal for Ghana’s next, likely $360 million disbursement from its Extended Credit Facility. Following the agreement on an MoU with official creditors, which satisfies the IMF’s ‘necessary financing assurances’ requirement, its Executive Board should vote positively allowing for the immediate distribution of funds.

But these funds, and the just under $1.5bn in future ECF financing after this distribution, is a fraction of Ghana’s almost $14.8bn 2023/26 ‘financing gap’ according to IMF calculations (AC Vol 64 No 11, Deeper reforms needed after the bailout). Of this, anticipated multilateral financing from the IMF, World Bank and African Development Bank represents under one third, and the remaining expected financing from external debt restructuring exceeds $10bn.

Ghana’s approximately $13bn in outstanding Eurobonds is critical to its short and medium-term finances. It is over double the sum owing to bilateral official creditors. The comparative terms of the debt restructuring offers to different sets of creditors are shrouded in secrecy but the London based Debt Justice organisation claims that Ghana’s initial proposal to the bondholders was offering 71 cents in the dollar but the offer to official creditors, announced on 12 June, amounted to 62 cents in the dollar.

None of this has been confirmed by the principals in the negotiations. The typical restructuring preferences of external bondholders versus official creditors are as follows: the former normally demanding relatively early cash receipts in exchange for conceding ‘haircuts’ on principal, and the latter usually wanting extended debt maturities with reduced coupon payments.

Under the official creditors deal, which contemplates restructuring terms equivalent to those of the January 2024 ‘in-principle’ deal, Ghana would get a substantial postponement of debt repayments, and a waiver through 2026 on debt service payments for over half of its bilateral debts (AC Vol 65 No 3, Cash flows in but debt talks drag on).

With bondholder talks set to resume following the government’s proposal and its agreement with the official creditors, many questions about the structure of a bondholder deal remain open. Particularly important is whether the terms of any replacement Eurobonds will include ‘state-contingent’ features.

Such features would allow bondholders to receive higher coupon payments or earlier than baseline repayment of bond principal should borrower economic performance exceed certain thresholds. In Zambia’s case, triggers include IMF-confirmed rolling averages of national exports and revenues in US dollar terms. Another option would be a step-up in payments should the prices of key Ghana commodities substantially outperform expectations. But the interplay between cocoa prices and lower cocoa output that is hitting export earnings shows the complexity of such arrangements.

Ghana’s Minister of Finance Mohammed Amin Adam has given little indication of being more receptive to such financial engineering than Ken Ofori-Atta was before his sacking by President Nana Akufo-Addo in February’s reshuffle. But at a time of fiscal challenge, the finance ministry remains under pressure to push for as large a debt ‘haircut’ with bondholders as practicable, within the parameters of comparability.

Earlier in the bondholder negotiations, Ofori-Atta suggested ‘haircuts’ in the 30-40% range. Now some officials are calling for 50%.

Another question is whether the IMF’s updated debt sustainability analysis would allow a modestly tweaked bondholder offer to become compliant with IMF programme requirements. That Amin Adam suggested that an ‘interim deal’ with bondholders might not require much adjustment to become IMF-compliant should provide grounds for hope that a Eurobond deal will be agreed and completed this year. The government would prefer that given the ruling New Patriotic Party faces tough national elections in December. But divergences among the two main bondholder groups over deal structure present another complication.

Unlike Zambia, where the role of China and its various state and ‘commercial’ lenders loom considerably larger, Ghana’s external commercial debt restructuring remains focused on bondholder negotiations. According to the January 2024 DSA, Ghana’s, non-Eurobond external commercial creditors – excluding holdings of cedi-denominated local debt – accounted for over $2.8bn of Ghana’s external debts in December 2022 when Ghana defaulted on its Eurobonds.

Even if a Eurobond restructuring deal is agreed and finalised prior to the elections, President Akufo-Addo and his NPP colleagues will have to do much more to reassure voters facing record unemployment, incomes undermined by spiralling prices, and a near 30% central bank policy rate. The value of a final debt deal to the government ahead of the election may be more in the freedom that it could give to pull in new streams of finance rather than any feelgood factor for the wider population.

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