Ghana hopes to take a big step towards restructuring its $58 billion-worth of debt this week, with its bilateral creditors meeting on Tuesday, April 11, 20223, to discuss whether to provide enough relief to unlock a $3 billion IMF bailout.
Ghana owes $5.5 billion to foreign governments and their state banks. Ken Ofori-Atta, Finance Minister, said he had “hope” those bilateral creditors would consent to enough debt relief to enable the country to tap an IMF loan package agreed last year.
“We hope on April 11 [2023] the Paris Club will meet with China present to provide financing assurances to the IMF,” he told the Financial Times. “This will be the defining input that [the IMF] will require to then go to their board.”
Commitments from bilateral creditors to provide debt relief are often the first step to unlocking an IMF-backed restructuring programme. The French Treasury, which hosts the Paris Club of bilateral creditors, said the group was “doing everything” to reach an agreement on the commitments required.
China, which is owed $1.9 billionn, was expected by Mr. Ofori-Atta to agree to a deal, despite not being a member of the Paris Club.
Ghana stopped repaying most of its debts in December 2022 and reached a preliminary deal with the International Monetary Fund (IMF) on a rescue package in the same month.
But the IMF’s support is dependent on Ghana meeting a string of conditions, including measures to raise revenues through a rise in the rate of value added tax, tariff increases on public utilities and an end to Central Bank finance for the government. The fund also asked Ghana to make progress on restructuring its domestic debts.
Mr. Ofori-Atta said the fund’s conditions had been met. “Those are literally all done, so we are pretty much there,” he said. “We have done what is required.”
Its restructuring talks are being closely watched by other low and middle-income countries who are in, or at risk of, default.
Zambia defaulted on its debts in 2020 and its debt restructuring — on which a $1.3 billion IMF programme depends — has stalled amid disagreement among its creditors. Sri Lanka defaulted last year and finally won the backing of the IMF for a $3bn bailout last month.
A breakthrough in Ghana’s debt talks could raise hopes of faster workouts in the restructuring of other countries’ debts in the future.
The IMF and World Bank have warned that a third of developing countries, including 60% of low-income countries, have debts that are unsustainable or in danger of becoming so.
The pandemic, Russia’s war on Ukraine and last year’s surge in global inflation and in the value of the US dollar against other currencies have pushed many countries into economic crisis and to the brink of default.
Once bilateral lenders have promised enough relief to make a country’s debt sustainable, it is up to the borrower to seek similar terms from other lenders including bondholders and commercial banks.
Data from Ghana’s Central Bank show that the country had external public debts equal to 44% of gross domestic product in September or about $34 billion, according to the IMF. Domestic public debts were equal to 32% of GDP, or about $24 billion.
Ghana halted payments on most of its external debts in December and called on holders of about $11 billion of its domestic debt to take part in an exchange that would significantly reduce the cost of debt service. Holders of about 85% of the eligible domestic debt had agreed to take part, Mr. Ofori-Atta said.
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