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Ghana’s bid to resolve its sovereign debt default has hit a stumbling block after the IMF said a proposed restructuring deal with holders of $13bn of international bonds does not go far enough in reducing Accra’s borrowing to a sustainable level.
The IMF advised that an outline deal reached with bondholders “would lead to breaches to the debt sustainability thresholds” of the fund’s $3bn bailout agreed in December 2022 and approved last year, President Nana Akufo-Addo’s government said on Monday.
Some private creditors, particularly African banks, owning a portion of the defaulted bonds also had reservations about current terms for replacing their debt, the government said.
The hurdle is a setback for Ghana more than a year after the country defaulted on most of its $30bn external debt, and shows how debt talks for poor countries under a flagship G20 process still face problems even after a landmark deal by Zambia last month.
Mohammed Amin Adam, Ghana’s finance minister, said on Saturday that he was confident of an eventual bondholder deal. Ghana had initially said it hoped to conclude the talks by the end of March.
The Ghanaian government added that it was “actively working on solutions” that would satisfy the IMF’s debt reduction demands.
Representatives of international bondholders who own about 40 per cent of the debt, including BlackRock and Amundi, said they welcomed an IMF update on the bailout’s progression last week that pointed to Ghana’s “improving growth outlook”.
“This positive forward-looking assessment will inform the restructuring discussions, which will continue at the adviser level this week,” they said.
The IMF confirmed that Ghana’s proposal would breach its bailout terms, adding that it “will continue to support the ongoing restructuring negotiations between the authorities and their external commercial creditors with the view to reach an agreement that is consistent with programme parameters”.
Ghana defaulted on its debt in December 2022 after an economic crisis triggered by rising global interest rates, soaring inflation in the wake of the pandemic and government overspending.
The country asked to restructure its external debt through a G20-approved “common framework” soon after it received an IMF bailout that was conditioned on a restructuring.
It dealt with defaulted domestic debts separately and relatively quickly, and reached a deal to restructure over $5bn owed to official bilateral lenders in January.
Bondholder talks are the next stage but Ghana also needs to formalise the deal with official creditors, IMF staff said as they gave the green light for the bailout to continue last week. Ghana is set to unlock $360mn in financing pending approval by the IMF board, after receiving $600mn in January.
Despite being intended to speed up sovereign restructuring processes, the G20 common framework has been beset by delays and rancour between creditors.
In Zambia, tensions between China, the country’s single biggest lender, and other creditors held up resolution of a 2020 default for more than three years until a breakthrough allowed the southern African nation to announce a deal with bondholders last month.
Ghana has been different because it owes less than a tenth of its external debt to China, but it has still been a complex debt restructuring with an array of creditor groups.
Ghana proposed to most bondholders that they take a one-third cut to the face value of their debt alongside restructured coupon payments of 5 per cent during the next three years, and 7.5 per cent thereafter, until the new debt matures in the 2030s.
The bank bondholders were asked to accept a coupon of 1.5 per cent and longer maturities in return for retaining the par value of their original debt. They “rejected the financial parameters of the par option as it currently stands,” the Ghanaian government said.
