Ghana to default on most external debt as economic crisis worsens

  • Ghana suspends payments of Eurobonds, commercial loans
  • The announcement comes a week after the IMF staff-level agreement
  • Eurobonds sank to 3 cents in dollars

ACCRA, Dec 19 (Reuters) – (This Dec. 19 story has been corrected to correct the debt figures in the first chart)

Ghana on Monday suspended payments on most of its foreign debt, effectively defaulting as the country struggles to offset its huge balance of payments deficit.

His finance ministry said it would not service the debts, including Eurobonds, commercial loans and most bilateral loans, calling the decision a “temporary emergency measure”, while some bondholders criticized the decision’s lack of clarity.

The government is “ready to engage in discussions with all its external creditors to make Ghana’s debt sustainable,” the finance ministry said.

The suspension of debt payments reflects the poor state of the economy, which prompted the government last week to reach a $3 billion staff-level agreement with the International Monetary Fund (IMF).

Ghana has already announced a domestic debt swap program and said external restructuring is being negotiated with creditors. The IMF has said comprehensive debt restructuring is a condition of its support.

The country has been struggling to refinance its debt since the start of the year after multiple credit rating agencies downgraded it over concerns it would not be able to issue new eurobonds.

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That sent Ghana’s debt further into troubled territory. Its public debt stood at 467.4 billion Ghana cedis ($55 billion according to Refinitiv Eikon data) in September, of which 42% is domestic.

Reuters Graphics

It had a balance of payments deficit of more than $3.4 billion in September, down from a surplus of $1.6 billion at the same time last year.

While 70% to 100% of government revenue currently goes to debt servicing, inflation in the country rose to as much as 50% in November.

Ghana is experiencing what some say is the worst economic crisis in a generation. Last month, more than 1,000 protesters marched through the capital Accra, calling for the president’s resignation and denouncing IMF deals as fuel and food costs soared.

Its gross international reserves stood at about $6.6 billion at the end of September, equal to covering imports for less than three months. That’s down from about $9.7 billion at the end of last year.

The government said the suspension would not include payments towards multilateral debt, new debt assumed after December 19 or debt related to certain short-term trade facilities.

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‘DON’T COME OUT OF THE BLUE’

Ghana’s international bondholders confirmed in an emailed statement late Monday the formal launch of a creditors’ committee aimed at facilitating an “orderly and comprehensive resolution” of the country’s debt.

Any negotiations in good faith, the creditors’ committee said, should avoid unilateral actions and require the timely exchange of detailed economic and financial information between international bondholders, the government and the IMF.

The board of directors consisted of Abrdn, Amundi, BlackRock, Greylock and Ninety One, the group said in its statement.

Katherine Exum, who heads Gramercy’s sovereign research department, expressed optimism about the debt restructuring, noting that it should prove easier for creditors than other recent emerging market restructurings.

“It’s more straightforward than the likes of Sri Lanka and Zambia, given that it doesn’t have a lot of Chinese debt,” Exum said Friday in comments anticipating external restructuring.

One bondholder, who requested anonymity, said the lack of details in the announcement could be cause for concern among investors.

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Ghana’s external bonds, trading at a very difficult level of 29-41 cents to the dollar, fell with the 2034 bond losing more than 3 cents, Tradeweb data showed.

Reuters Graphics Reuters Graphics

Still, some investors said the suspension of foreign debt payments was expected.

“It’s consistent with Ghana entering into restructuring talks with various debt holders, so it’s not coming out of the blue,” Rob Drijkoningen, co-head of emerging markets debt at Neuberger Berman, which holds some Ghanaian eurobonds.

Ghana did pay the coupon on Dec. 16 on the 2049 Eurobond, according to a person familiar with the matter.

It was not immediately clear whether the debt service suspension would include a $1 billion 2030 bond that has a $400 million World Bank guarantee.

“At this time we will not comment on the specifics of any particular bond or debt, but … we are fully engaging all stakeholders,” a finance ministry spokesman told Reuters.

Reporting by Christian Acorley and Cooper Inwin; Additional reporting by Rachel Savage, Marc Jones and Jorgelin do Rosario; Screenplay by Rachel Savage and Cooper Inveen; Editing: Karin Strohecker, Ed Osmond, Arun Kojur and Aurora Ellis

Our Standards: Thomson Reuters Trust Principles.

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