Ghana: Debt default announcement will dampen investor confidence, say analysts

By Jonas Nyabor
Posted on Tuesday, 20 December 2022 13:59

FILE PHOTO: Ghanaians march in the streets on the second day of protests over recent economic hardships, in Accra, Ghana, June 29, 2022. REUTERS

Ghana will be faced with more difficulty accessing international financing in the short to medium term after surprising international bondholders with its announcement of a suspension of payments on some of its foreign debts this week.

Ghana’s foreign debt holders were expecting to have a series of engagements with the government to discuss the foreign debt restructure when the latter surprised them with a debt default announcement on Monday.

Analysts expected Ghana to default on payment of its external debts, but they didn’t anticipate the announcement to be this soon.

“We are announcing today a suspension of all debt service payments under certain categories of our external debt, pending an orderly restructuring of the affected obligations. This suspension will include the payments on our Eurobonds, our commercial term loans, and on most of our bilateral debt,” said Ghana’s finance ministry on Monday.

We all knew the government [would] default ,but we expected it to have discussions and reach consensus with the creditors before an announcement

The announcement comes barely a week after reaching a staff-level agreement with the IMF for a $3bn bailout to stabilise its struggling economy.

With November inflation pegged at 50% and the Ghanaian cedi on a wobbly streak, 2022 has been a difficult year for the West African country.

James Dzansi, an economist for the International Growth Centre, says the Ghanian government’s approach may set it up for difficult negotiations with its international creditors and a possible extension of the period of lockout from the international bond market.

“We all knew the government [would] default, but we expected it to have discussions and reach consensus with the creditors before an announcement,” he tells The Africa Report.

“The approach of trying to force someone will not work. It will damage our reputation further and possibly extend the term period for which we can come back on the international financial market.

“They [bondholders] are going to be recalcitrant and take a posture that may not be mutually beneficial,” he says.

Fair agreement

Holders of Ghana’s Eurobonds have formed a representative committee led by Abrdn, Amundi (UK) Limited, BlackRock, Greylock Capital, and Ninety One to engage Ghana towards a resolution of its debt crisis.

“Such resolution will require fair burden-sharing and collaboration among the Ghanaian authorities, private creditors [both domestic and international] and official sector creditors,” the committee said in a statement on Monday.

Ghana will need to extensively engage the Eurobond holders to reach a fair and acceptable agreement on dealing with the debt situation. This process, according to the holders, must be “a process of good faith negotiation would avoid unilaterally actions and would require inter alia, the timely exchange of detailed economic and financial information among the committee, the Ghanaian authorities and the IMF and would need to be anchored in reasonably feasible economic adjustment by the Ghanaian authorities”.

Domestic bondholders are yet to get off the government’s tail as the latter’s unpopular debt exchange programme, which was launched earlier this month, will see payment of debts delayed and interests slashed.

An indefinite strike has consequently been planned for 27 December by labour unions with a specific demand for exemption of their pension funds from the programme.

Last week, the government was forced to extend the deadline for enrollment into the programme to 30 December after it failed to get participants.

Analysts say Ghana will face less resistance and keep investors at ease if it holds further discussions with them before major announcements concerning the debt restructure programme.

This will be critical for Ghana as it requires majority acceptance of the programme to get the IMF board and management’s consent for a bailout.

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