Ghana Defaults on the Majority of its Foreign Debt
In an effort to close its enormous balance of payments imbalance, Ghana halted payments on the majority of its external debt on Monday.
While several bondholders criticized the lack of clarity in the decision, the country's finance ministry indicated it will not service debts such as its Eurobonds, commercial loans, and the majority of bilateral loans.
According to the finance ministry, the government "stands ready to engage in discussions with all of its external creditors to make Ghana's debt sustainable."
The bleak status of the economy, which had prompted the government to strike a $3 billion staff-level agreement with the International Monetary Fund last week, is reflected in the suspension of debt payments (IMF).
Ghana previously declared a domestic debt swap program and stated that creditors were negotiating an external restructure. A comprehensive debt restructuring is a need for IMF funding, according to their statement.
Since the beginning of the year, the nation has struggled to refinance its debt due to downgrades by numerous credit rating agencies on worries that it wouldn't be able to issue fresh Eurobonds.
As a result, Ghana's debt is now even more troubled. According to Refinitiv Eikon data, the public debt as of September was 467.4 billion Ghanaian cedis ($55 billion), of which 42% was domestic.
In comparison to the same period previous year, it had a balance of payments surplus of $1.6 billion, down to a deficit of more than $3.4 billion in September.
While the government currently spends 70% to 100% of its income on debt repayment, inflation in the nation has soared to as much as 50% in November.
Some claim that Ghana is currently going through its worst economic crisis in a generation. More than a thousand demonstrators marched through Accra, the nation's capital, last month, demanding the president's resignation and criticizing IMF agreements as the price of food and fuel skyrocketed.
At the end of September, it had gross international reserves of about $6.6 billion, or less than three months' worth of imports. This is a decrease from the approximately $9.7 billion at year's end.
According to the administration, the suspension does not apply to payments for multilateral debt, brand-new loans obtained after December 19 or loans for certain short-term trade facilities.
Not emerging from the blue
Holders of Ghana's international bonds announced late on Monday that a creditor committee had officially been established with the goal of aiding the "orderly and thorough resolution" of the nation's financial problems.
The creditor committee stated that any good faith negotiations would have to refrain from unilateral acts and necessitate the prompt exchange of comprehensive economic and financial data between international bondholders, the government, and the IMF.
According to the group's announcement, the steering committee consisted of Abrdn, Amundi, BlackRock, Greylock, and Ninety One.
The co-head of Gramercy's Sovereign Research division, Kathryn Exum, expressed optimism over debt restructuring and noted that it should be less difficult for creditors than other recent developing market restructurings.
Exum stated on Friday that the external restructuring was "more straightforward than the likes of Sri Lanka and Zambia, in that there is not a lot of China debt."
Investors may be concerned due to the announcement's lack of details, according to a bondholder who asked to remain anonymous.
According to Tradeweb statistics, Ghana's external bonds, which are currently trading at a severely distressed level of 29–41 cents in the dollar, declined, with the 2034 bond losing more than 3 cents.
However, some investors said that the suspension of the payment of the external debt was predicted.
It is not out of the blue, according to Rob Drijkoningen, co-head of emerging market debt at Neuberger Berman, which holds some Ghanaian Eurobonds. "It is consistent with Ghana going into negotiations about restructuring with various debt holders, so not coming out of the blue," he said.
According to a source with knowledge of the situation, Ghana did pay the coupon that was due on a 2049 Eurobond on December 16.
It was unclear right away if the suspension of debt service would apply to a $1 billion 2030 bond with a $400 million World Bank guarantee.
