Restructuring commercial debts: Bilateral creditors deal paves way — Analysts
The agreement between the government and the bilateral Official Creditor Committee (OCC) should send a signal to the commercial creditors to also get on board as the country seeks to restructure commercial debts of US$14 billion, out of which US$13 billion are in Eurobonds, three economists have told the Graphic Business.
Advertisement
They, however, urged the government to anticipate some pushback from the commercial creditors, as the dynamics surrounding the negotiations would not be straightforward like that of the bilateral creditors.
With several bullet payments set to mature in the coming months, the economists urged the government to push and get this done as soon as possible.
Speaking in an interview with the Graphic Business, a Professor of Finance and Economics at the University of Ghana, Professor Godfred Bokpin, said while the country celebrated the deal with the OCC, it should bear in mind that there are several hurdles still ahead.
He noted that the deal with the OCC was to restructure just US$5.4 billion out of the country’s total external debt of about US$20 billion which means that there was still more work to be done.
“This positive news has to do with only one aspect of our external debt which is just US$5.4 billion out of about US$20 billion and sometimes the dynamics will not be that straight forward with the external commercial as compared to the bilateral.
“Although negotiations are taking place under the G20 Framework on Debt Treatment, it is possible that there could be some pushbacks from the commercial creditors so let’s anticipate that,” he stated.
Restoring debt sustainability
In a bid to restore debt sustainability and reduce debt to GDP ratio to 55 per cent by 2026, Ghana, under the three year IMF programme embarked on a debt restructuring exercise which comprised both domestic and external.
The domestic debt restructuring exercise, which has been concluded, saw the government swap bonds worth GH¢82 billion for 12 new ones at reduced coupon rates and longer tenors.
After months of prolonged negotiations with the Bilateral Official Creditor Committee co-chaired by France and China, the Ministry of Finance on January 12, announced that the country had reached an agreement with its official creditors under the G20 Common Framework, on a comprehensive Debt Treatment Beyond the Debt Service Suspension Initiative (DSSI).
This comes eight months after the Executive Board of the IMF approved the country’s programme three months after the country reached a staff-level agreement on the first review of the programme.
The ministry, in the release, said the development constituted a significant positive step towards restoring Ghana’s long-term debt sustainability.
It indicated that the terms of the agreed debt treatment were expected to be formalised in a Memorandum of Understanding between Ghana and Official Creditors, which would then be implemented through bilateral agreements with each member of the Official Creditor Committee.
“The Government of Ghana looks forward to further engaging with the Official Creditors to ensure prompt implementation of the agreed terms,” the release noted.
IMF response
The Managing Director of the IMF, also in a statement said the IMF welcomes the announcement, noting that the agreement with the OCC was consistent with the objectives of the IMF-supported programme, which aims to restore macroeconomic stability and debt sustainability, build resilience, and lay the foundations for stronger and more inclusive growth
“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.
“This 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. I look forward to continuing our fruitful collaboration with Ghana,” she stated.
Commercial creditors
With an agreement reached with the OCC, the next hurdle for the government is to reach an agreement with the commercial creditors.
At his last update, the Minister of Finance, Ken Ofori Atta, said two bondholder groups have been formed, comprising domestic and regional bondholders and international bondholders.“We have engaged in good faith discussions with both of them and shared illustrative debt restructuring scenarios in May.
“We have now received debt treatment scenarios from both bondholder groups and expect to accelerate our constructive dialogue in the upcoming weeks,” he said.
Advertisement
Getting on board
Speaking in an interview with the Graphic Business, the Director of the Institute of Statistical, Social and Economic Research, Professor Peter Quartey, said the agreement with the OCC should send a signal to the commercial creditors to also get on board and get it done.
“I believe it shouldn’t take more than three months to get this also sorted. These are debts that we have to pay and it’s not comfortable, knowing that there is a debt to be paid which you are not.
“So we should try and reach an agreement with them so we know the way forward,” he stated.
He said the country needed to reach an agreement with them as soon as possible and put in place a strategy to repay.
Advertisement
“We have come very far and gone past the difficult time. We are seeing signs of recovery so we need to work at it very hard and ensure that we turn around the economy completely and meet our debt obligations as well,” he said.
Huge problem
The Head of Research at the Institute of Fiscal Studies, Dr Said Boakye, also in an interview said the Eurobond debts were a huge problem hanging on the neck of the country.
He said several bullet payments would mature soon should the government fail to reach a restructuring agreement with the commercial creditors, noting that time was not on the side of the country.
“The international capital market is currently closed to us so we cannot raise new funds to repay those debts so if something significant is not done, it will be a problem.
Advertisement
“The government must work to get that done as soon as possible because, at the moment, we are not in a position to make any bullet payments when they are due,” he said.
IMF Board approval
The agreement with the OCC paves the way for the IMF Executive Board to approve the first review of the Fund-supported programme, allowing for the next tranche of IMF financing of US$600 million to be disbursed.
The IMF Board Approval should also trigger the World Bank Board consideration of US$300 million in Development Policy Operation (DPO) financing.
In addition, the World Bank is expected to support the Ghana Financial Stability Fund with US$250 million to help address the impact of the Domestic Debt Exchange Programme (DDEP) on the financial sector.
Commenting on this, Prof. Bopkin said this was a significant step in the implementation of the IMF-supported programme.
With a US$15 billion financing gap in the balance of payment terms in the next three years, he said the release of these funds would go a long way to moderate uncertainties in the economy and consolidate confidence that the IMF programme was working.
He said the agreement with the OCC would now have to be worked out between Ghana and member countries.
“There is a second stage of ensuring that member countries walk the talk and that could be challenging,” he stated.