Ghana’s debt exchange yields $15bn (GH¢225bn) relief

Principal and interest either cancelled or payment deferred in the government’s debt restructuring exercise amounts to over $15 billion, the equivalent of GH¢225 billion.
This is the result of the completion of three major debt restructuring operations: domestic debt restructuring, external bilateral debt restructuring, and commercial bondholders debt restructuring.

$4.7bn (GH¢65bn) cancelled from Eurobonds
The restructuring of $13.1 billion of Eurobond debts resulted in significant savings cancellation of $4.7 billion, or GH¢65 billion involving a 37% effective nominal haircut, an increase from the initial 33% offer.
This comprises principal savings of $1.5 billion and interest savings of $2.9 billion.

$4.4bn (GH¢60bn) debt service relief on Eurobonds
Additionally, Ghana will save $4.4 billion, or GH¢60 billion, in debt service, providing further financial relief during the International Monetary Fund (IMF) Programme.

$2.8bn (GH¢39bn) relief on bilateral debts
The $5.4 billion agreement signed with bilateral debt holders will provide a cash flow relief of approximately $2.8 billion, or GH¢39 billion, in debt service, postponed between 2023 and 2026 to be repaid later at a cheaper interest rate.

GH₵61bn haircut for domestic bondholders
Overall GH₵203 billion were exchanged in the Domestic Debt Exchange Programme (DDEP) which has resulted in debt service savings of GH₵61 billion over 2023.
The domestic debt restructuring, achieved a high participation rate of almost 95%.

Domestic Coupon rates drop to 9%
Coupon rates were reduced from 21% to 9% on average, and maturities were extended, easing the near-term local debt service burden that previously consumed more than 40% of the country’s tax revenues.

The outcome of the debt restructuring aligns with the IMF programme parameters for Ghana’s three-year Extended Credit Facility (ECF) and unlocks $360 million next tranche.

Much-needed financial relief
These efforts have provided much-needed financial relief and set the stage for a renewed focus on critical infrastructure and development projects.
It is expected that many of the country’s stalled projects would soon resume.
Implementation of the Eurobond agreement-in-principle is subject to mutual agreement on deal documentation and other stated conditions.

Factors that caused Ghana’s default
Ghana defaulted on most of its $30 billion in external debt in 2022, following the fallout from the COVID-19 pandemic, a surge in inflation, Cedi depreciation, the war in Ukraine, and higher global interest rates, which exacerbated economic strains and made the country’s debt unsustainable.

Debt payment suspended in December 2022
Consequently, the country suspended payments on its external loans in December 2022 as part of the broader debt restructuring effort under the 17th IMF loan-support programme to reach debt sustainability.

The proposed agreement on the restructuring of the Eurobonds would resolve Ghana’s default on the Eurobonds in a manner that provides significant cash flow and debt stock relief to support Ghana’s economic recovery in the context of the IMF-financed programme.
Alongside debt relief, the Committee recognizes that the most important factor to support Ghana’s fiscal and debt sustainability going forward is sustained economic policy implementation to bolster macroeconomic stability, improve the investor environment, and institutionalize fiscal credibility.
In particular, the Committee welcomes the Government’s commitment to reinstate and implement an amended Fiscal Responsibility Act.
The non-financial provisions included in the agreement-in-principle, such as the semi-annual disclosure of public debt, the most-favored-creditor clause, and loss reinstatement clause, are part of the package of measures to normalize relations with bondholder investors and progress towards restoring Ghana’s international market access.
These and other key elements of the agreement-in-principle are contained in the Government’s press release.
Implementation of the agreement-in-principle is subject to mutual agreement on deal documentation and other stated conditions.
The Committee encourages all holders of the Eurobonds to carefully consider the terms of the government’s prospective offer in relation to the agreement-in-principle and make their own independent appraisal of the merits and risks of participation.
The Committee welcomed the government’s commitment to reinstate and implement an amended Fiscal Responsibility Act, aimed at ensuring macroeconomic stability and debt sustainability.
To achieve this, the Act, among other provisions, charges the government to ensure that the overall fiscal balance on a cash basis for a particular year does not exceed a deficit of five percent of Gross Domestic Product (GDP) for that year.
However, the Committee underscored the need for the country to sustain economic policy implementation to bolster macroeconomic stability, improve the investor environment, and institutionalize fiscal credibility.
Providing details on the agreement, it indicated that the non-financial provisions included a semi-annual disclosure of public debt, the most-favored-creditor clause, and loss reinstatement clause.
The Committee said these were part of the package of measures to normalize relations with bondholder investors and progress towards restoring Ghana’s international market access.
Members of the Committee include Abrdn, Amundi (UK) Limited, Grantham, Mayo, Van Otterloo & Co. LLC, Greylock Capital Management, Neuberger Berman, and Wellington Management, acting either directly or on behalf of funds or the accounts they manage.
The Committee encourages all holders of the Eurobonds to carefully consider the terms of the government’s prospective offer in relation to the agreement-in-principle and to make their own independent appraisal of the merits and risks of participation.
Negotiations with international investors holding about 40% of Ghana’s $13 billion of defaulted Eurobonds began in mid-March and resulted in an interim deal.
This involved two groups of bondholders: a group of Western asset managers and hedge funds, and another group including regional African banks.
Initially, these bondholders had agreed to a 33% effective nominal haircut and had backed down on the inclusion of value-recovery instruments, which would have tied interest payments to the country’s future economic growth.
However, the IMF noted that the “working scenario” presented by the Ghanaian government requires further consideration to fully align with the debt sustainability agreement between the IMF and Ghana.
This agreement signifies a crucial step towards stabilizing Ghana’s economy and securing the financial support necessary to implement its economic recovery plan.