Ghana is hoping to restructure its $58 billion debt with the help of its bilateral creditors who are meeting on Tuesday, April 11, 2023, to discuss debt relief that will enable the country to unlock a $3 billion bailout from the International Monetary Fund (IMF).
The country owes $5.5 billion to foreign governments and state banks. Finance Minister Ken Ofori-Atta expressed optimism that the Paris Club of bilateral creditors would provide enough debt relief to enable Ghana to tap into the IMF loan package agreed upon last year.
The Paris Club of bilateral creditors is an informal group of creditor countries that negotiates debt restructuring on a case-by-case basis. Ghana hopes to secure commitments from the bilateral creditors to provide debt relief, which will be the first step to unlocking an IMF-backed restructuring program.
The French Treasury, which hosts the Paris Club, said the group is “doing everything” to reach an agreement on the commitments required.
China, which is not a member of the Paris Club and is owed $1.9 billion by Ghana, is expected to agree to a deal according to Ofori-Atta. Ghana stopped repaying most of its debts in December 2022 and reached a preliminary deal with the IMF on a rescue package in the same month.
However, the IMF’s support is dependent on Ghana meeting certain conditions, including measures to raise revenues through an increase 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.
Ofori-Atta said the fund’s conditions had been met, stating, “Those are literally all done, so we are pretty much there. We have done what is required.” Ghana’s restructuring talks are being closely monitored by other low and middle-income countries that are in, or at risk of, default.
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 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, according to Ofori-Atta. A breakthrough in Ghana’s debt talks could raise hopes of faster workouts in the restructuring of other countries’ debts in the future.
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