Ghana is targeting $10.5 billion of external debt service relief from 2023-2026, the IMF said, giving an early indication of how large a hit investors might face in an impending debt overhaul. The West African country’s debt is currently unsustainable, but Ghana aims to restore it to a “moderate” risk of debt distress by 2028, bringing its public debt-to-GDP ratio from 88.1% at the end of 2022 to 55% by 2028, the International Monetary Fund said in its Debt Sustainability Analysis (DSA). “Our back-of-the-envelope calculations suggest that this translates to a 40%-50% haircut on external debt, if there is not further restructuring of domestic debt,” Bojosi Morule, an economist at Goldman Sachs, said in emailed reaction to the DSA.
“We think the assumptions on growth and balance of payments look relatively conservative,” Morule said. The IMF’s executive board on Wednesday approved a $3 billion, three-year rescue loan, paving a potential path out of Ghana’s worst economic crisis in a generation. Ghana’s already strained finances buckled under the fallout of COVID-19 and Russia’s invasion of Ukraine and it is now seeking to restructure $20 billion of its roughly $30 billion external debt, including about $13 billion of Eurobonds, under the Group of 20’s Common Framework platform. Earlier this year it completed a domestic debt exchange. The IMF said Ghana has a $15 billion financing gap in its balance of payments from 2023 to 2026, with the World Bank set to give budget and balance-of-payments support of $1.6 billion.
“The IMF report does not encompass any material surprises,” said Kathryn Exum, co-head of sovereign research at investment manager Gramercy. “Recovery on bonds should be comfortably above current levels.” Ghana’s international bonds were trading down as much as 0.7 cents in the dollar at 1640 GMT, with most still at severely distressed levels of 37 to 41 cents .Ghana aims to agree a memorandum of understanding with official creditors before the first IMF programme review, to then have the IMF board consider a second $600 million payout in November, IMF Mission Chief Stephane Roudet told a press conference on Thursday. But the IMF report warned that domestic policy slippages represented a “significant downside risk … further compounded by risks associated to the end-2024 general elections”.
Other risks include Ghana not regaining market access to issue debt and the domestic debt exchange posing dangers to financial sector stability, the IMF said. Finance Minister Ken Ofori-Atta said during a joint press conference with Roudet that Ghana was not in a rush to go back to the international financial markets. “We don’t see that the banks are having any difficulty with liquidity,” Bank of Ghana Governor Ernest Addison added. Reuters