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Geopolitical shifts and multilateral concessions at the Washington meetings could speed up Accra's IMF deal
In the end, the sceptics were correct. President Nana Addo Dankwa Akufo-Addo's promise in his State of the Nation speech that the US$3 billion IMF Extended Credit Facility (ECF) would be presented to the Fund's Executive Board by the end of March did not come to pass.
Instead, Ghana's debt restructuring and financing package became a key talking point at the 10-16 April IMF/World Bank Spring meetings in Washington DC. Delegates reported growing pressure on creditors to show more flexibility on debt restructuring. And more hopeful news emerged: of an outline agreement between Ghana and creditors from China's policy banks and the Paris Club of official creditors.
That agreement would be the basis of the 'financing assurances' from key bilateral lenders that the IMF requires to build on its staff level agreement with Accra. The final element is the understanding among Ghana's advisors and officials that its programme could be put to the IMF board before the conclusion of an agreement to restructure about $13bn of Eurobonds.
Getting Ghana's programme to the IMF board is the top priority for President Akufo-Addo and Finance Minister Ken Ofori-Atta. Then will come negotiations under the G20-backed Common Framework to restructure Ghana's external, foreign currency-denominated debts, and managing impact of the domestic debt exchange offer on public finances and key bondholder groups.
Inflation is running over 50% for the fourth successive month and the central bank has increased rates again. Sri Lanka's experience of receiving Executive Board approval of its four-year $3bn Extended Fund Facility (EFF) in March after getting assurances from its official bilateral creditors of debt relief and financing – like Zambia's case – offers lessons for Ghana's debt restructuring and IMF negotiations.
Sri Lanka won its IMF imprimatur prior to completed external debt restructuring (outside the Common Framework) and – according to IMF officials – should now be able to access additional financing from the World Bank and Asian Development Bank. But it has only received 11% ($330 million) of its programme amount up-front.
The domestic fallout from Ghana's Domestic Debt Exchange Programme, completed in February, deepens (AC Vol 64 No 1, Financial meltdown weakens NPP). Critics scorn the government's '85%' bondholder participation claim, which ignores the winnowing down of originally 'eligible' bondholders in the various iterations of the DDEP that obscures the willingness of individual and institutional bondholders to participate in the offer. An adjusted participation figure may be closer to 60%.
President Akufo-Addo claims that the 83bn cedi principal amount ($7bn) of exchanged domestic bonds accounts for 64% of Ghana's debts. But the latest Bank of Ghana numbers suggest that – as of December 2022 – domestic debts exceeded 194bn cedis, excluding amounts owed by struggling state-owned-enterprises and special purpose vehicles. That implies that significantly less than half Ghana's domestic debts were restructured.
Doubts are also growing over the funding and adequacy of the government's 'financial stability fund', intended to provide liquidity to struggling banks affected by the restructuring, and the ability of smaller lenders to weather the storm.
Ghanaians will take a hit regardless of whether they participated in the offer or are debating whether to invest in government debt in the future. This is despite a sweetening of the original offer terms of the former, including higher than initially offered interest payments and earlier than initially offered repayment of principal.
On the external front, Ghana's attempts to secure financing assurances from bilateral creditors was delayed by tensions between China, the Paris Club and the multilateral financial institutions over which lenders should incur losses.
Chinese officials and academics had accused the Paris Club of trying to force China to write off debts, dismissing accusations from senior United States officials of debt-trap diplomacy and denying that Beijing was holding up debt restructurings in countries such as Sri Lanka, Zambia and Ghana.
Initially, Beijing officials had argued that the IMF and World Bank, along with other multilateral banks, should be prepared to accept debt haircuts rather than hide behind their preferred creditor status (AC Vol 64 No 7,A commission under fire) as a condition of China's agreement to debt write-downs. Reuters reported that Beijing officials would revise that stance during the IMF/World Bank meeting.
US Vice-President Kamala Harris's recent visit to Ghana, as part of an Africa tour taking in Tanzania and Zambia, also helped push IMF approval for the $3bn ECF. Yet questions remain about when Ghana receives final approval and accesses more financing from the program and other lenders, and how much ECF cash it will receive prior to the first programme review.
Until now, China had been hardening its stance on Zambia debt concessions since last year – perhaps seeing Sri Lanka as more strategically important (Dispatches 24/1/23,East-West blame game on debt heats up). Ghana's relatively modest ($1.9bn versus Zambia's approximately $6bn) official debt exposure to China, which might incentivise concession, could encourage flexibility towards Accra. China's restructuring pledges to Sri Lanka are being tested following similar assurances from the Paris Club and India.
Around Ofori-Atta's meetings with Chinese officials in Accra and negotiations in Beijing last month, President Akufo-Addo and his finance minister insisted that Chinese concessions would come. They would enable Ghana to provide the Fund with the financing assurances it demands.
But full restructuring of Ghana's external debts still depends on reaching agreement with numerous bondholders, including those (such as vulture funds) already purchasing Ghana-issued Eurobonds from prior holders seeking to exit before haircuts cut cash flows. The government's relationship with bondholders remains damaged after it announced in December it would suspend payments on the Eurobonds and some other external debts.
With Ghana represented by Lazards, and participating bondholders forming a committee represented by Rothschild, the negotiations could stretch out, complicated by the varying terms of Ghana's numerous Eurobond tranches.
Not all include 'collective action clauses', let alone CACs updated to match typical post-2014 international bond documentation that make it harder for holdouts to stymie negotiations and demand – according to local bankers – their 'pound of flesh'. Speculation persists over how Ghana's 2030 Eurobond, partially guaranteed by the World Bank, will be treated.
Insiders suggest that Ofori-Atta is targeting up to 50% haircut on principal, exceeding the standard in such restructurings. Concessions will be needed on all sides in a process that could run into next year's election cycle. International bank analysts have suggested that principal haircuts could be avoided, if replaced by interest payment cuts and maturity extensions sufficient to significantly reduce Ghana's debt service burden in the next few years.
Now there is little doubt that Ghana will get its IMF programme but it has its work cut out convincing the markets that its finances will be put back in order.
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