Ghana’s aspirations to swiftly navigate out of its economic turmoil suffered a setback as it failed to secure an agreement with international bondholders to restructure $13 billion of its external debt. The government’s efforts hit a roadblock after the International Monetary Fund (IMF) signaled that the proposed deal did not align with its debt sustainability parameters.
Formal negotiations, which commenced on March 16, involved two distinct bondholder groups: one comprising Western asset managers and hedge funds and another comprising regional African banks. Despite months of discussions, consensus remained elusive, leading to a stalemate.
The rejection of the proposed rework by both groups poses significant challenges for Ghana, which defaulted on most of its external debt in December 2022, amounting to approximately $30 billion. The subsequent economic crisis saw a surge in debt costs and inflation, dwindling reserves, and restricted access to international bond markets.
While Ghana’s economic recovery commenced, with a 2.9% growth in 2023 surpassing the IMF’s projections, reaching an agreement with bondholders has proven arduous. The impasse casts shadows over the government’s efforts to stabilize the economy and restore investor confidence.
In a regulatory statement, the Ghanaian government affirmed its commitment to finding solutions within the IMF program parameters, striving for a mutually acceptable agreement. However, the failure to secure a deal has led to a decline in the value of dollar-denominated bonds, commonly known as eurobonds.
Regional bondholders remain optimistic about the Ghanaian economy’s performance compared to the IMF’s initial analysis of debt sustainability. Samuel Sule, Chief Executive Officer at Renaissance Capital Africa and financial advisor to the group, expressed hope for a potential deal by the end of 2024.
The IMF’s approval of a $3 billion, three-year loan program to Ghana in May 2023, contingent on reforms and a sustainable debt restructuring, underscores the significance of reaching an agreement with bondholders. The ongoing second review of the loan program emphasizes the need for progress in negotiations.
Despite challenges, Ghana remains confident in its ability to reach an agreement with bondholders. Finance Minister Mohammed Amin Adam reiterated the government’s determination, acknowledging the importance of continued dialogue and progress.
Ghana’s aim to reduce $10.5 billion from its external debt repayments and interest costs underscores the urgency of reaching an agreement with bondholders. The proposed restructuring options, including discounted bonds and a “PAR option,” faced scrutiny from bondholders, who sought additional conditions and state-contingent debt instruments.
As Ghana navigates its debt restructuring under the G20 Common Framework, the outcome of negotiations with bondholders remains pivotal for its economic recovery and financial stability. Despite the challenges encountered, stakeholders remain hopeful for a resolution that aligns with the country’s long-term interests.
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