Stalemate

Ghana’s government said that Ghana has failed to secure a workable debt deal with two bondholder groups in its push to restructure $13…

Ghana’s government said that Ghana has failed to secure a workable debt deal with two bondholder groups in its push to restructure $13 billion of international bonds. The government said formal talks were on hold for now after the International Monetary Fund (IMF) indicated that the deal would not fit its debt sustainability parameters. “We will regroup to continue negotiations until we reach a deal that is consistent with the IMF’s debt sustainability targets,” the office of Finance Minister Mohammed Amin Adam said on X. He said Ghana had reached an “interim deal” with bondholders but that needed to be tweaked to meet IMF targets.

Ghana’s prolonged economic crisis means it must cut about $10.5 billion of external debt, which is above $30 billion. The debt rework headache for Ghana comes in two forms: bilateral and commercial. An agreement in principle with bilateral creditors in January 2024 was enough to meet the needed financing assurance to unlock the second disbursement of $600 million under the $3 billion IMF programme. In fact, Ghana has begun another debt restructuring dance toward securing the third tranche of $360 million after reaching an IMF Staff-Level Agreement. Beyond this agreement, there’s a big hurdle for the West African country to cross. The Fund has stressed that to ensure the timely completion of the second review, Ghana and its official bilateral creditors need to agree on a Memorandum of Understanding for a debt treatment, consistent with the agreement in principle reached in January 2024. Talks have taken a different turn after the IMF indicated that Ghana’s deal with its external bondholders would not fit its debt sustainability parameters. A regrouping was done right after the significant rejection as Accra’s original request of up to 40% haircut on commercial bonds keeps reducing, making it difficult to meet the Fund’s acceptable threshold. Ghana has not secured any concrete deal with specific MoUs, which has complicated talks. However, there seems to be some hope on the horizon for debt crisis veterans like Ghana as the IMF runs into the debt rework ring to save them. The IMF executive board has backed a key change to give it more freedom to support countries in crisis even if debt renegotiations with big creditor governments like China are ongoing. The proposal aims to reform the IMF’s Lending Into Official Arrears (LIOA) policy, which determines when it can lend to a country owing money to another IMF member nation. A significant change will allow lending to a country even if no debt agreement with one or more bilateral creditors has been reached, granting the Fund “additional safeguards.” While this is good news for Ghana in the future, its authorities must secure a deal with external creditors during the ongoing Spring Meeting in Washington if they require financing from the IMF and its partners.