Ken Ofori-Atta, Minister of Finance
Ken Ofori-Atta, Minister of Finance

Restructuring of commercial debts: Fitch expects Ghana to reach an agreement by mid-2024

Rating agency, Fitch has cast doubts on the country’s ability to reach a deal with its commercial external creditors by end of the year.

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Presenting the 2023 Mid-year budget, Minister of Finance, Ken Ofori Atta, said the government expects to reach an agreement with its private creditors by end of this year, noting that two bondholder groups have been formed, comprising domestic and regional bondholders as well as international bondholders.

He said the government had already shared a set of data and scenarios to commence discussions and expects to receive counteroffers from the bondholders in the short-term as it envisages an agreement by year end

But in its latest report on Ghana, Fitch indicated that under its baseline scenario, it expects an agreement to be reached by the second half of 2024.

It noted that the Ministry of Finance’s external debt restructuring parameters scenarios for bondholders, involved a nominal haircut of 30 per cent to 40 per cent, coupons of no more than five per cent and maturities of up to 20 years.

Ghana is looking to restructure about US$20 billion of external debt, including official bilateral debt, export credit agencies-backed commercial loans, Eurobonds and non-insured commercial loans, under the G20 Common Framework.

On the commercial side, the government announced a suspension of debt service on its obligations on December 19, 2022 and has since then been engaging with them on a debt restructuring.

The government is seeking to restructure debts totaling $14 billion, out of which $13 billion are in bonds with its commercial creditors.

On the bilateral side, the government is expected to sign an MoU soon with the Official Creditor Committee (OCC) co-chaired by China and France to restructure debts of about US$5.4 billion.

The country is targeting an external debt relief of US$10.5 billion between 2023-2026 as it engages these external creditors who include both bilateral and commercial creditors.

This component of the debt restructuring activities is very critical to the IMF programme which seeks to bring the country’s debt to sustainable levels.

Under the IMF programme, the country is expected to reduce its debt to GDP ratio to 55 per cent by 2028.

Domestic debt restructuring

On the domestic side, Fitch indicated that the successful completion of the domestic debt restructuring has normalised relations with a significant majority of local-currency creditors, with a participation rate of 92 per cent on local-currency government bonds.

As a result, Fitch upgraded Ghana’s Long-Term Local-Currency Issuer Default Rating (IDR) to 'CCC' from 'RD'.

The first part of the DDEP saw the government swap old bonds valued at GH¢82 billion for 12 new ones at reduced coupon rates and longer tenors.

The exchange of dollar denominated local bonds of about US$742 million also saw a participation ratio of 91.7 per cent; the exchange of cocoa bills worth GH¢ 7.7 billion also saw a participation ratio of 97.4 per cent, while the exchange of pension funds holdings of treasury bonds of about GH¢29.6 billion also saw a participation ratio of 95.3 per cent

Public debt to decline

Following the debt restructuring activities, Fitch said it expects the country’s public debt to decline to 87 per cent of GDP at end-2023, from 89% in 2022.

It said this would be largely driven by the 50 per cent haircut on Bank of Ghana's holdings of non-marketable debt, which represents a debt reduction of 4.2 per cent of estimated 2023 GDP.

Fitch said it expects this would partly offset by 33 per cent year-on-year cedi depreciation compared with end-2022 and the primary deficit.

“Assuming a 30% haircut on external debt considered for the restructuring, year-on-year cedi depreciation of 20% in 2024 and 9% in 2025 and a GDP deflator of 21% and 10% respectively, public debt would fall to 78% by 2025, although there is a high degree of uncertainty surrounding the definitive external debt restructuring parameters,” Fitch explained.

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