Government has announced the suspension of payments on selected external debts, pending an orderly restructuring of the affected obligations – citing among other things severe constraints on financial resources, including international reserves.
According to the finance ministry, this suspension covers all debt service payments under certain categories of the country’s external debt.
A statement announcing government’s prior action to an orderly restructuring of external debt specified that this suspension will include payments on the country’s Eurobonds; commercial term loans; and most of its bilateral debt.
“This suspension will not include the payments of our multilateral debt, new debts (whether multilateral or otherwise) contracted after December 19, 2022, or debts related to certain short-term trade facilities. We are also evaluating certain specific debts related to projects with the highest socio-economic impact for Ghana which may have to be excluded,” the ministry said.
“This suspension is an interim emergency measure pending future agreements with all relevant creditors,” it added.
However, government assured that it stands ready to engage in discussions with all its external creditors to make Ghana’s debt sustainable through a fair, transparent and comprehensive debt restructuring exercise in line with international best practices.
In reaction to the development, Dean of the University of Cape Coast (UCC) Business School Professor John Gatsi said while he does not anticipate a crushing response from the markets, the abrupt manner of the announcement – prior to engagements with bondholders – could lead to some resistance from investors.
“The manner in which it was announced has taken us a bit by surprise; but I believe government is not so concerned about the impact of further downgrades, as the external market is not an option at the moment,” he stated.
Vultures circling
The economist added that while there exists a possibility of investors dumping their holdings with vulture funds – entities that purchase distressed debt on the secondary market, where it trades significantly below its face value and then seek to recover the full amount, often through litigation – as was witnessed with Argentina, the IMF backing should provide some cover.
“Unlike equities, bonds demand an obligation; and since this is a default, some parties could decide to pursue litigation. But perhaps the Fund might ensure that this does not escalate,” he opined.
Domestic front
This action follows the domestic debt operation, which has been touted as a more comprehensive agenda to restore public debt sustainability.
When completed, it is expected to afford government some fiscal space to operate as it envisages reducing debt service payments in 2023, which per the 2023 budget is GH¢52.55billion. Further to this, there will be approximately GH¢137billion of domestic notes and bonds to be voluntarily exchanged – including E.S.L.A. and Daakye bonds – for a package of new bonds to be issued by the Treasury.
Nonetheless, government’s Debt Sustainability Analysis (DSA) has shown that the public debt, both external and domestic, is unsustainable – given the severity of economic and social crisis the country is facing. As such, the domestic debt operation alone will be insufficient to close the significant financing gaps the country will face over coming years.
The programme has been met with stiff resistance, particularly from organised labour and pensions – with the finance ministry announcing an extension of the deadline from Monday, December 19 to Friday, December 30, as it continues negotiations to secure buy-in from relevant stakeholders.
Following the successful IMF Staff-Level Agreement (SLA) on a financing programme aimed at restoring macroeconomic stability and debt sustainability, and preserving financial stability while protecting the most vulnerable; government expects that creditors will also respond in an expedited manner to ensure the IMF-supported programme is adopted by the IMF Board as soon as possible in early 2023.
