As the economic crisis gets worse, Ghana will default on its most important external debts

Ghana suspended Monday payments on its majority of external debt. This effectively renders the country in default as it struggles to fill its huge balance of payments gap.

The finance ministry of the country said that it would not service any debts, including those from Eurobonds and commercial loans. Some bondholders criticized the lack of clarity.

According to the Finance Ministry, Ghana is ready to talk to all its creditors outside of Ghana to ensure that Ghana’s debt sustainability can be achieved.

This suspension of debt payments is a reflection of the economic crisis that led to the signing of a $3 billion staff-level agreement by the government with the International Monetary Fund.

Ghana already had announced an international debt swap programme. It also stated that it was in the process of negotiating with creditors to do an external restructuring. According to the IMF, a complete restructuring of debt is required in order for it to continue its support.

After multiple downgrades from credit rating agencies, the country is having trouble refinancing its debt. This was in response to concerns that it wouldn’t be able issue any new Eurobonds.

This has pushed Ghana’s debt into a more difficult territory. In September, Ghana’s public debt was 467.4 Billion Ghanaian Cedis (or $55 billion according to Refinitiv Eikon data). 42% of this figure were domestic.

In September it had a deficit in balance payments of over $3.4 billion, compared to a surplus last year of $1.6 billion.

While 70-100% of government revenues go to servicing debts, inflation in the country has risen to up to 50% as of November.

At the end September, its gross international reserves were around $6.6billion. This is less than 3 months’ imports coverage. This is a decrease of around $9.7 trillion from the previous year.

According to the government, the suspension does not apply to multilateral debt payments or new debts incurred after Dec. 19, nor debts linked with certain short-term trading facilities.

Kathryn Exum co-leads Gramercy’s Sovereign Research division and expressed optimism about debt restructuring. She noted that creditors should find it easier than recent emerging market restructurings.

Exum stated that it was more straightforward than Sri Lanka or Zambia insofar as there isn’t a lot China debt.

An anonymous bondholder said that investors who are frustrated at the insufficient transparency of the finance ministry might be concerned by the absence of details in the announcement.

The bondholder stated that Ghana is performing roughly as expected but was not friendly with creditors outside of Ghana. They have been less friendly throughout this process.”

Tradeweb data revealed that Ghana’s foreign bonds are at an extremely distressed level, trading between 29 and 41 cents per dollar. The 2034 bond lost more than three cents.

However, investors stated that the payment of debt externally would be suspended.

It is consistent with Ghana entering talks with debt holders about restructuring, so it’s not out of the blue,” Rob Drijkoningen (co-head of emerging markets debt at Neuberger Berman), who holds some Ghanaian Eurobonds.

According to someone familiar with the matter, Ghana paid a Dec. 16 coupon on its 2049 Eurobond.

The suspension of debt service did not include the $1 billion 2030 Bond that is backed by a $400 Million World Bank Guarantee.

A spokesperson for the finance ministry told Reuters that while we won’t comment on specific bonds or debts owing at this point,…we are fully engaging with all stakeholders.”


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