BLOOMBERG
(Bloomberg) — Ghana struck a deal with creditors to restructure $5.4 billion of bilateral loans after months of negotiations.
The agreement with Paris Club of creditors and others, including China, “constitutes a significant positive step toward restoring Ghana’s long term debt sustainability,” Minister of Finance Ken Ofori-Atta said in a statement on X.
The terms are expected to be formalized in a memorandum of understanding between Ghana and the official creditors, which will then be implemented through bilateral accords, he said.
The deal, negotiated under the Group-of-20 Common Framework for Debt Treatment, paves the way for the International Monetary Fund to make a second $600 million disbursement under its $3 billion bailout program to the West African nation.
IMF Managing Director Kristalina Georgieva lauded the announcement as “another substantial milestone for the G20 Common Framework under which G20 creditors joined forces to agree on debt relief for Ghana.”
The nation reached a staff-level agreement with the Washington-based lender in October on the first review of the program. It is awaiting the executive board’s sign-off to trigger the second disbursement.
Georgieva said the deal with official creditors clears the path for the board to take up Ghana’s latest review in the next few days.
An approval would also unlock as much as $550 million of additional funding from the World Bank, Ofori-Atta said.
Ghana, which received an initial $600 million at the start of the three-year program in May, must now reach a debt restructure deal with commercial creditors.
The country’s adherence to the Common Framework follows similar efforts from Zambia, which reached a memorandum of understanding with its official creditors in October but has struggled to reach a restructuring deal with Eurobond investors. A key sticking point there has been how to measure “comparability of treatment” between official and commercial creditors, a guiding principle of the framework.
The mechanism, which expands the Paris Club to include China and other nations, requires indebted countries to first agree on debt-rework terms with official creditors. That then lays the groundwork for an accord with commercial creditors.
Debt Target
Ghana halted payments on most of its external debt just over a year ago. In October it proposed a principal reduction of as much as a 40% for commercial creditors, which includes holders of $13 billion of global bonds.
“Today’s agreement with official creditors will support ongoing engagements with Ghana’s commercial creditors, including bondholders,” Ofori-Atta said.
To meet its IMF target, the $77 billion economy needs to reduce debt to 55% of gross domestic product by 2028, compared with the 109% that was projected for the year before Ghana began restructuring.
A domestic debt restructuring, which has already been carried out, and a set of fiscal adjustments will lower Ghana’s debt to 72% of GDP by 2028. The payment relief from bilateral and commercial lenders is therefore needed to reduce the nation’s obligations burden further.
(Updates with comment from IMF and context starting in fifth paragraph.)
©2024 Bloomberg L.P.
