Ghana, like many other countries, has faced significant economic challenges due to the global pandemic and mounting debt burdens. Despite recent efforts to restructure a portion of its domestic debt, Ghana still finds itself grappling with a substantial financing gap. The recent formation of a creditor committee – co-chaired by China and France, and their statement urging negotiations for debt treatments, underscore the inevitability of another round of domestic debt restructuring for the country. This article will examine the factors leading to this conclusion and shed light on Ghana’s ongoing debt crisis.
The current debt scenario
Ghana’s domestic debt eligibility stands at a staggering GH¢259billion, with only less than 50 percent of it restructured thus far. The restructured domestic debt accounts for 85 percent of GH¢98billion, leaving over GH¢123billion – which includes Cocoa bills, Bank of Ghana overdraft extensions, and pension funds – in need of restructuring. This substantial debt burden necessitates further actions to ensure Ghana’s economic stability and long-term sustainability.
The IMF programme and external debt restructuring
Ghana’s financing gap, estimated at US$15billion, is a significant challenge that needs to be addressed promptly. While the International Monetary Fund (IMF) is providing US$3billion to support Ghana’s IMF extended credit facility (ECF) programme, an additional US$12billion is expected from external debt restructuring through debt relief and fresh funding from external bilateral creditors. This underlines the country’s reliance on external assistance to bridge the financing gap.
The creditor committee’s role:
The creditor committee plays a crucial role in Ghana’s debt restructuring process. Comprised of countries with eligible claims on Ghana and co-chaired by China and France, the committee’s primary objective is to assess Ghana’s macroeconomic and financial situation. By evaluating the country’s economic indicators, fiscal policies and debt sustainability, the committee gains a comprehensive understanding of Ghana’s financial challenges and the potential remedies needed.
Furthermore, the endorsement of Ghana’s debt treatment request, under the ‘Common Framework for Debt Treatments beyond the DSSI’ by the creditor committee, signifies their recognition of the country’s need for international support. This endorsement highlights the committee’s acknowledgment of Ghana’s efforts to address its debt burden and their commitment to providing assistance in navigating the challenging economic landscape.
The committee also emphasises the importance of negotiations with private creditors and other official bilateral creditors. By urging these stakeholders to participate in the debt restructuring process, the committee aims to secure debt treatments on terms that are, at least, as favourable as those offered by the committee itself. This principle of comparability of treatment ensures a fair and equitable approach to debt restructuring, maximising the effectiveness of the overall debt treatment for Ghana.
Importance of another round of domestic debt restructuring
Given Ghana’s significant outstanding domestic debt, which includes Cocoa bills, Bank of Ghana overdraft extensions and pension funds, it becomes apparent that another round of domestic debt restructuring is inevitable. The current restructuring efforts have only addressed a portion of the debt burden, leaving a substantial amount unresolved. Ghana’s ability to ensure the full effectiveness of the debt treatment under the Common Framework relies on the commitment of private creditors and other official bilateral creditors to negotiate favourable debt treatments.
Treasury bills may be affected
A second round of domestic debt restructuring in Ghana may potentially affect treasury bills, and investors should exercise caution. The current situation, where treasury bills remain unaffected by the previous restructuring efforts, has led to a significant influx of funds into these instruments. Treasury bills are currently yielding an exorbitant 25 percent, compared to bond interest rates that hover around 8 percent to 10 percent. This stark disparity raises concerns about the efficacy of the recent debt restructuring and highlights potential risks for investors. Additionally, the downward-sloping yield curve, indicating an ailing economy, further exacerbates these concerns. Investors should be mindful of the possibility that a second round of debt restructuring may impact treasury bills, potentially altering their attractiveness and yields. It is essential for investors to carefully evaluate the evolving debt landscape and its potential implications before making investment decisions.
Organised labour
The government’s ability to convince organised labour and other interest groups to allow their pension and provident funds to be touched in the midst of a debt restructuring process is contingent upon several factors. However, it may face significant challenges in gaining the support of these groups, particularly if the government has not taken sufficient measures to address concerns related to corruption, mismanagement and profligacy.
Organized labour and interest groups often prioritise the protection of workers’ rights, including their retirement benefits. They may be reluctant to see their pension and provident funds affected if they perceive that the government has not made concerted efforts to address underlying issues within its own ranks. The perception that the government has failed to tackle corruption, mismanagement and profligacy can undermine trust and make it more challenging for the government to secure the consent of these groups for adjustments to their pension funds.
Conclusion
The government’s ability to convince organised labour and other interest groups to accept adjustments to their pension and provident funds during a debt restructuring process depends on its ability to address concerns related to corruption, mismanagement, and profligacy. Demonstrating a commitment to good governance, transparency and accountability as well as engaging in open dialogue can enhance the chances of gaining support from these groups. However, failure to adequately address these underlying issues may make it more challenging for the government to convince them to accept such adjustments.
Ghana’s economic stability and long-term sustainability depend on effectively managing its debt burdens. The formation of the creditor committee, its support for Ghana’s IMF programme, and the emphasis on negotiations for debt treatments highlight the pressing need for another round of domestic debt restructuring. With a financing gap of US$15billion and reliance on external debt restructuring, Ghana must address its outstanding domestic debt to regain financial stability and pave the way for sustainable economic growth. It is crucial for all stakeholders involved to work together and commit to finding equitable solutions that benefit both Ghana and its creditors.
The writer is an Economic Policy and Financial Analyst
