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Ghana, official creditors close to MoU on debt restructuring

Published

4 months ago

June 9, 2024

According to two individuals quoted by Reuters, Ghana and its official creditors have resolved the main points of a debt restructure and will shortly sign a draft memorandum of agreement, which is a crucial step needed to obtain further financing from the International Monetary Fund (IMF).

The document formalizes a tentative agreement to restructure $5.4 billion in debt that was made in January with government creditors, including China and France. The West African country is attempting to navigate its way out of the worst economic crisis in a generation.

Establishing an MoU will enable the IMF executive board to convene and authorize the $360 million payment under Ghana’s $3 billion rescue plan, which is anticipated to take place later this month.

One person with knowledge of the situation stated that all significant difficulties had been resolved and that the only remaining steps were to finalize some precise wording. The sources stated that the agreement was likely to be signed in a few days. An inquiry for comment was not immediately answered by a representative for Ghana’s Finance Ministry.

Amid skyrocketing servicing expenses, Ghana defaulted on the majority of its foreign debt in December 2022, following Zambia into post-COVID default. Remaining in default makes it more difficult for the government to get outside financing and escape a dire economic situation.

Ghana, like Zambia, agreed to undergo debt treatment under the G20 Common Framework, a procedure meant to speed up debt restructurings and include China, the newest major bilateral lender, in the process. Earlier this week, bondholders in Zambia approved the restructuring after the southern African copper miner missed payments due to the COVID-19 outbreak.

The World Bank and other international organizations, as well as creditors, are keen to hasten Ghana’s debt restructuring and believe that the country’s nearly four-year-long, erratic struggle out of default offers valuable lessons for Ghana.

In addition to restructuring the majority of its domestic debt, Ghana must also come to an understanding with the holders of over $13 billion in foreign bonds.

Ghana’s national debt-to-GDP ratio was expected to decrease by 15% between 2023 and 2028. According to this estimate, the percentage will have decreased annually for six years, reaching 69.96% in 2028.

The majority of the country’s foreign debts were not repaid by December 2022 because the costs had risen too high. However, it now needs to negotiate a settlement with individuals who own foreign bonds worth roughly $13 billion. The majority of its domestic debt has also been modified.

Related Topics:debt rework Featured Ghana

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Zambia eyes recovery following worst drought

Published

9 hours ago

September 28, 2024

Ifeoluwa Dada

As it emerges from its worst drought in living memory, Zambia hopes to achieve a fast recovery in economic growth and a halving of its budget deficit in the following year, the country’s finance minister announced on Friday.

In contrast to a projected 2.3% growth in 2024, the copper producer aims for 6.6% growth in 2025, according to Finance Minister, Situmbeko Musokotwane, in a budget speech.

The El Nino-caused drought destroyed Southern Africa’s crops, resulting in food shortages and harming the region’s economic prospects this year.

Zambia’s finance minister said on Friday that the nation, which is coming out of the worst drought in living memory, intends to quickly recover economic growth and cut its budget deficit in half the next year.

Finance Minister Situmbeko Musokotwane stated in a budget address that the copper producer is targeting 6.6% growth in 2025 as opposed to a projected 2.3% increase in 2024.

A UNICEF study in March 2024 states that the majority of the country’s central and southern regions have been impacted by the dry spell since mid-January. These regions have gotten less rainfall than usual, which has resulted in the destruction of one million hectares of maize—nearly half of all the corn grown in the nation.

Since hydropower generates more than 80% of Zambia’s electricity, the analysis also predicted that the drought would cause a power shortage of 430 megawatts and have an impact on surface and groundwater levels. These projections would have serious ramifications for industries other than agriculture.

The minister further stated that following the conclusion of a Eurobond restructuring exercise, Zambia was still negotiating restructuring arrangements with certain commercial creditors.

He reported that the China Development Bank and the Industrial and Commercial Bank of China have just struck provisional restructuring agreements with Zambia.

It has been demonstrated that the agreements are in line with Zambia’s IMF program and the “Comparability of Treatment principle,” which aims to prevent the wealthier creditor nations that make up the Paris Club from making disproportionate concessions in comparison to other creditors.

The lengthy debt restructuring process in Zambia has hurt local financial markets and discouraged investment.

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Ghana central bank cuts key rate as inflation cools

Published

22 hours ago

September 27, 2024

Ifeoluwa Dada

The governor of Ghana’s central bank has stated that the country’s economy is still recovering strongly and that inflation is continuing to decline, causing the bank to drop its main interest rate by 200 basis points to 27%. This was the first rate cut since January.

At a press conference Friday, Bank of Ghana Governor Ernest Addison stated that economic indicators point to a proceeding disinflation, with price increases continuing to moderate in the direction of the year’s short-term range target of 13% to 17%.

“Such a strong signalling of the monetary policy rate by reducing it by 200 basis points tells you that the central bank is quite satisfied with the progress of recovery of this economy,” Addison said, adding that all indicators including growth, inflation and fiscal policy are improving.

According to Reuters polled economists in July, Ghana’s interest rate is predicted to drop by 200 basis points by year’s end.

“This easing of policy is understandable, given that the recent falls in inflation had caused real interest rates to rise, something that this cut will partially reverse,” said Leslie Dwinght-Mensah, economist and research fellow at Accra-based Institute for Fiscal Studies.

“The strong rate of economic activity, which official data recently revealed, also gave the central bank the comfort to take this step.”

Economists surveyed by Reuters in July expected that by year’s end, Ghana’s interest rate will have decreased by 200 basis points.

“The strong rate of economic activity, which official data recently revealed, also gave the central bank the comfort to take this step.”

Economists surveyed by Reuters in July expected that by year’s end, Ghana’s interest rate will have decreased by 200 basis points.

“The strong rate of economic activity, which official data recently revealed, also gave the central bank the comfort to take this step.”

Following the completion of preliminary debt restructuring negotiations with two bondholder groups, Ghana extended an invitation to holders of its approximately $13 billion worth of international bonds to exchange their holdings for new instruments.

Bondholders can accept the offer until September 30.