Ghana has agreed a $3bn loan with the IMF, moving the heavily indebted west African nation closer to a deal with creditors that would stabilise its economy and finances after a year of turmoil.
The loan, which would provide funding for three years, is a staff level agreement between the fund and Ghanaian authorities. It must now be approved by IMF management and its executive board. Stéphane Roudet, the IMF’s head of mission to Ghana, said on Tuesday at a press briefing that the board would only approve the loan if Ghana restructures its debt with its private sector and foreign government creditors.
Finance minister Ken Ofori-Atta said at the same briefing that Ghana hoped to receive approval by “early next year.”
Ghana announced the terms of its negotiations with private bondholders last month.
It wants local bondholders to forgo interest payments and extend the maturity of their bonds while excluding haircuts on their principals. The Chamber of Corporate Trustees, a body representing private pension funds in Ghana, rejected the latest deal last week.
Bright Simons, vice-president of think-tank Imani, anticipated a deal with domestic creditors would be difficult to reach, with a substantial number of them resistant to current plans. “The government has to fix its approach to debt sustainability considerably,” Simons said. “It has bungled it.”
International bondholders, meanwhile, were asked to accept haircuts of as much as 30 per cent, deputy finance minister John Kumah told local radio station Joy FM in an interview last month. President Nana Akufo-Addo had previously said no one would have to take a haircut.
Global creditors only expect the terms of any restructuring to be agreed in negotiations next year. Kevin Daly, of asset manager Abrdn, said reaching agreement with bondholders “should not be a major hurdle . . . as long as [Ghana’s government] don’t come out and dictate terms”.
World Bank data show that Ghana had $27.4bn of external public and publicly guaranteed debt at the end of 2021, including $3.2bn owed to foreign governments and $13.1bn owed to private-sector bondholders.
Accra is seeking to restore market confidence after the three big rating agencies downgraded it to junk status over the course of this year.
IMF negotiations began in July when Ghana changed course and agreed to start discussions with the Washington-based lender amid mounting market turmoil.
“The economic programme aims to restore macroeconomic stability and debt sustainability while laying the foundation for stronger and more inclusive growth,” Roudet said in a statement.
Ghana’s servicing costs on its borrowing are expected to take up almost 50 per cent of government revenue. Annual inflation surged to a 21-year high of 40 per cent in October, while the cedi has fallen by almost 50 per cent against the dollar this year.
Ofori-Atta announced measures last month to cut spending and increase government revenues.
The IMF assured Ghanaians that the programme would protect the vulnerable and said it had received a commitment from the government to strengthen social safety nets through cash transfer for the poorest. The fund added that the Ghanaian authorities had “committed to bolstering governance and accountability” and “advancing reforms to bolster tax compliance”. The authorities collect 11.3 per cent of taxes as a percentage of GDP, significantly below the African average of 16.6 per cent.
Ghana, once a darling of the Eurobond market, has been shut out of international debt markets this year and forced to take out domestic loans with interest rates of as much as 32 per cent. Its economy has been battered by the effects of Russia’s war in Ukraine and its over-reliance on commodity products such as gold, cocoa and oil.
The deal is Ghana’s 17th programme with the IMF since independence in 1957.
Additional reporting by Jonathan Wheatley