Who is planning to restructure Ghana’s debt
2022.12.09 09:09
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Who is planning to restructure Ghana’s debt
Budrigannews.com – As the West African nation struggles with its worst economic crisis in a generation, Ghana has begun restructuring its debt by implementing a plan to swap $10.5 billion in local bonds for new ones, requesting assistance from the IMF, and preparing a proposal to restructure its foreign debt.
In Ghana, inflation has skyrocketed in 2022, reaching a 21-year high of 40.4% per year in October. The most recent 250 basis point increase in interest rates to 27% in November did not stop price increases.
Ghana’s external debt is now more expensive because the cedi has lost more than 50% of its value this year.
The premium investors demand to hold the gold, cocoa, and oil producer’s debt over safe-haven U.S. Treasuries has been above 1,000 basis points for the majority of the past year, keeping it out of international markets. At the moment, the spread is greater than 3,000 bps.
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Graphic: Ghana’s domestic borrowing costs have increased while Ghana’s Eurobonds have decreased in comparison to peers. On Monday, Finance Minister Ken Ofori-Atta stated that interest payments consumed 70 to 100 percent of government revenues. According to the credit rating agency Fitch, that is the worst statistic in the world other than Sri Lanka, which is in default.
According to the most recent figures released by the central bank last month, Ghana’s public debt in September was 467.4 billion cedis ($37.4 billion), of which 42% was domestic debt.
On Monday, Ofori-Atta said that it is now more than 100% of GDP. He was making the announcement of some of the plans that the government hopes will bring that ratio down to 55% by 2028.
During his presentation of the 2023 budget last month, he stated that the nation is highly susceptible to debt distress. Graphic: According to the Central Securities Depository of the nation, commercial banks held a third of Ghana’s domestic debt and that of its state-owned enterprises at the end of September. Foreign investors, pension funds, and the central bank are some of the other major holders. Graphic: Who is in charge of Ghana’s domestic debt?
Eurobonds worth $13 billion are held by major global asset managers like BlackRock (NYSE:) in Ghana. AllianceBernstein, Vontobel (NYSE:), According to the most recent filings, Neuberger Berman and PIMCO
It is unclear whether the debt restructuring will include the $1 billion 2030 Eurobond, which has a $400 million guarantee from the World Bank and is trading significantly higher than other bonds that are not guaranteed.
According to data from the World Bank, Ghana had $3.2 billion in bilateral debt and $6.3 billion in debt with multilateral institutions by the end of 2021, of which $4.6 billion was owed to the World Bank.
Graphic: What is Ghana proposing in terms of debt breakdown?
On Monday, Ofori-Atta announced a plan to exchange the country’s local bonds for approximately $10.5 billion, or 137.3 billion Ghana cedis.
More than 60 local bonds with maturities between 2023 and 2039 will be exchanged for new ones with maturities between 2027, 2029, 2032, and 2037. The annual coupon will be set at zero percent in 2023, five percent in 2024, and ten percent in 2025 until they reach maturity.
After treasury and debt management director Samuel Arkhurst warned on Wednesday that large holdouts would spell “trouble,” the nation’s central bank issued relief measures for banks participating in the bond exchange.
The financial sector will be cushioned by the establishment of a $1.2-billion financial stability fund. On Monday, Ofori-Atta stated that plans for restructuring the external debt would be made public in “due course.”
In July, Ghana’s government broke its promise to never seek assistance from the IMF. Ofori-Atta stated that it was considering a three-year program with a potential value of $2 billion to $3 billion.
From December 1 to 13, a team from the IMF is in Ghana. The plans for Ghana’s domestic bond exchange and debt sustainability have not yet received a response from the fund.
Arkhurst stated on Wednesday that the IMF team’s departure without a staff level agreement could delay and complicate Ghana’s economic recovery. 1 Ghanian cedi is equal to 12.5000
