Accra, Ghana — In a significant move towards stabilizing its economy, Ghana has finalized a memorandum of understanding (MoU) with its bilateral creditors to restructure $5.4 billion of debt. This agreement, confirmed by two government sources, comes a year and a half after the West African nation defaulted on its external debt.
The MoU includes major creditors such as China and France, and sets the stage for the International Monetary Fund (IMF) to disburse $360 million under Ghana’s $3 billion, three-year bailout program. The IMF’s executive board is expected to approve this disbursement next month, marking a critical step in Ghana’s economic recovery.
This agreement will form the foundation for restructuring loans under the Paris Club of creditors, which includes nations like China and France. The Paris Club had agreed to the restructuring terms in January, providing a unified approach to manage Ghana’s debt crisis.
Finance Minister Mohammed Amin Adam is scheduled to hold a press briefing on Friday morning to provide further details on this landmark agreement.
Economic Recovery Amid Crisis
Ghana, a major exporter of gold, cocoa, and oil, became the second African country to default on its external debt, amounting to $30 billion, during the COVID-19 pandemic. This economic crisis marked the worst downturn for Ghana in a generation. Zambia was the first African nation to default under similar circumstances.
However, Ghana’s economy has shown signs of recovery. Inflation has decreased significantly, from a peak of 54.1% in December 2022 to 25% in April 2024. Additionally, the country’s economic growth exceeded expectations, reaching 2.9% in 2023, surpassing the IMF’s forecast of 2.3%.
Debt Restructuring under G20 Common Framework
Ghana, alongside Zambia and Ethiopia, is restructuring its debt under the G20 Common Framework. This initiative, introduced during the pandemic, aims to expedite debt restructuring processes for struggling nations. Despite this framework, progress has been sluggish, impeding these countries’ economic recoveries and limiting access to essential overseas loans, aid, and investment.
The IMF’s Debt Sustainability Analysis (DSA) declared Ghana’s debt unsustainable and outlined a goal for the country to achieve a “moderate” risk of debt distress by 2028. This objective involves reducing Ghana’s public debt-to-GDP ratio from 88.1% at the end of 2022 to 55% by 2028.
Impact on Bondholders and Future Deals
The terms agreed upon with official creditors are crucial for Ghanaian bondholders, who anticipate an equitable solution based on the comparability of treatment principle. This principle, a cornerstone of the Common Framework for debt restructuring, ensures that all creditors are treated equally.
In April, Ghana reached an interim agreement with some of its largest bondholders, including Western asset managers, hedge funds, and regional African banks. However, the IMF indicated that this deal did not meet the DSA threshold and required adjustments. Regional African banks had also rejected certain aspects of the deal, such as retaining the original bond values with extended maturities and lower interest rates.
The Ghanaian government has pledged to meet the IMF’s requirements to ensure the success of the restructuring process.
Domestic Debt Restructuring Success
In October, Ghana concluded a domestic debt restructuring, exchanging 206 billion Ghanaian cedi ($17.5 billion) for longer-dated, lower-interest debt. This move generated 61 billion Ghanaian cedi in savings, as reported by then-Finance Minister Ken Ofori-Atta.
The successful restructuring of both domestic and external debt is a pivotal element of Ghana’s broader strategy to restore economic stability and growth. As the nation navigates through these financial adjustments, the MoU with bilateral creditors marks a hopeful step towards a sustainable economic future.
+ There are no comments
Add yours