After months of negotiation, the Ghanaian government has secured a deal with the official creditors committee to restructure $5.4 billion of bilateral loans.
The country’s government and its official creditors are expected to formalize terms in a memorandum of understanding, with subsequent implementation through bilateral accords.
According to a post made on X by the Ghanaian Finance Minister, Ken-Ofori Atta, the deal with its official creditors, including the Paris Club and China, “constitutes a significant positive step toward restoring Ghana’s long-term debt sustainability.”
The deal was negotiated under the G20 Common Framework for comprehensive debt treatment.
Ofori-Atta mentioned that the deal should “trigger $1.25 billion in immediate financing” for the Ghanaian economy. Including, a second $600 million disbursement from the IMF as part of its $3 billion bailout program to Ghana; the World Bank’s development policy financing of $300 million; and the World Bank’s $250 million support for the Ghana Financial Stability Fund.
In reacting to the announcement, Kristina Georgieva, IMF’s Managing Director, noted,
- “I want to thank the Official Creditor Committee, especially the co-chairs, China and France, for all their work to reach this agreement. This is another substantial milestone for the G20 Common Framework under which G20 creditors joined forces to agree on debt relief for Ghana.”
What you should know
The IMF currently has a $3 billion bailout program for Ghana, which is aimed at improving the country’s macroeconomic stability and aiding Ghana’s debt sustainability.
The term of the program is that $600 million will be disbursed to Ghana every year between 2023 and 2027.
As part of the conditions for the program, the Ghanaian government is expected to drop its public debt-to-GDP ratio to 55% by 2028. Before the start of the program in 2023, Ghana’s debt-to-GDP ratio was projected to hit 109%.
In line with these conditions, Ghana has completed a domestic debt restructuring and implemented fiscal adjustments, aiming to bring down its debt to 72% of GDP by 2028.
However, to achieve further relief, the country needs to restructure its debts with its bilateral lenders and commercial creditors.
About the second IMF disbursement, Ghana and the IMF reached a staff-level agreement in October 2023, based on the first review of the program. However, the executive board needs to sign off to release the second $600 million.
According to Georgieva, this new agreement,
- “clears the path for IMF Executive Board consideration of the first review of Ghana’s three-year Extended Credit Facility Arrangement in the next few days.”
While the deal with its official creditors (bilateral lenders) is at a concluding phase, the country must now focus on its commercial creditors.
Recall that in December 2022, Ghana suspended debt service payments on all its Eurobond loans, commercial loans, and bilateral debts.
At the time, the Ghanaian Finance Ministry noted,
- “This suspension will include the payments on our Eurobonds; our commercial term loans; and on most of our bilateral debt.”
Then, in October 2023, Ken-Ofori Atta proposed a potential 40% reduction of the principal amount for commercial creditors, including the $13 billion global bondholders.
He noted,
- “In our indicative scenario, the restructuring terms for bondholders involve a nominal haircut between 30% and 40%, looking at coupons of no more than 5% and final maturities of no more than maybe 20 years.”
It is also anticipated that the deal with the official creditors will aid the negotiation with bondholders in the coming weeks.
Speaking on the deal with the official creditors, Ofori-Atta noted,
- “Today’s agreement with official creditors will support ongoing engagements with Ghana’s commercial creditors, including bondholders,”