Ghana secured a staff-level agreement with the International Monetary Fund for a $3 billion bailout, a key step in the West African nation’s plans to restructure its unsustainable debt.
The accord, which still requires IMF board approval, enables the government to address its precarious public finances and support the cedi — the world’s worst-performing currency tracked by Bloomberg this year. Investor concerns about ballooning government debt — forecast to exceed the size of its economy this year — led to a selloff of government bonds that effectively locked the country out of global capital markets.
“The economic program aims to restore macroeconomic stability and debt sustainability while laying the foundation for stronger and more inclusive growth,” IMF Ghana Mission Chief Stéphane Roudet said. The agreement is also subject to receiving the necessary financing assurances from Ghana’s partners and creditors, he said.
Ghana’s benchmark 10-year Eurobond surged the most since Nov. 4, with the yield dropping 121 basis points to 28.25% by 12:20 p.m. in Accra, the capital. The cedi gained as much as 8.6% and traded 6.5% stronger at 11.50 per dollar, bringing its world-beating gains this month to 23%.
Ghana secured the IMF deal after asking local bondholders to accept losses on interest payments while excluding a haircut on their principal payments. The government aims to start talks with bilateral lenders and foreign investors this week, Ghanaian Finance Minister Ken Ofori-Atta told reporters Tuesday.
Ofori-Atta didn’t give further details on the debt restructuring offer to external bondholders, but Deputy Finance Minister John Kumah said last month that they may be asked to accept losses of as much as 30% on their principal and forgo some interest.
The country is also willing to consider debt treatment under the Group of 20 Common Debt Framework, a mechanism that seeks to help poor nations to restructure excessive liabilities, Ofori-Atta said. But the government would need to be reassured that the process would be quick before making a decision.
“The Common Framework has been plagued by a lot of difficulties,” the minister said. “If that’s the platform that has to be used, we’ll need assurance of speed, to expedite it, and clarity of what we have to do to do that.”
The government announced measures last month to cut spending and boost revenue to help narrow the budget deficit to 7.7% of the gross domestic product on a commission basis in 2023, from 9.9% this year. It’s also seeking a 2.5 percentage-point increase in the value-added tax rate.
“Together with efforts to bring the government deficit down, the authorities have announced a comprehensive debt operation to ensure debt sustainability,” the IMF said. “We welcome policies to ensure the sustainability of public finances, including the planned fiscal adjustment and medium-term policies to lay the foundation for strong and inclusive growth while protecting the vulnerable.”
The country had 393.4 billion cedis ($35 billion) of debt at the end of June, and debt-service costs were equivalent to 68% of tax revenue over the same period, according to budget data.
While the world’s second-biggest cocoa producer has no dollar debt maturing until July 2023, it faces 43.5 billion cedis of domestic local-currency bonds maturing through the end of June, data compiled by Bloomberg show. On top of that, it has $663 million of coupon payments on dollar debt due by that date.
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