Deepening crisis forces Ghana to backtrack on promises and restructure foreign debt

The Kantamanto textile market in Accra. Photographer: Andrew Caballero-Reynolds/Bloomberg

Amid a fragmenting political environment, Ghana has reversed previous promises and proposed a 30% “haircut” on foreign debt. The restructuring announcement came after the mid-November budget was delayed, and finance minister Ken Ofori-Atta faced substantial parliamentary opposition to his plan to restructure only domestically-held debt.

While investors were left without key details, markets reacted positively to the move that many observers saw as inevitable. Ghana’s 2032 Eurobonds paired some losses, rising 20 cents on the dollar in London after the policy change was announced on Thursday.

The proposed debt swap will likely be treated as a restricted default by rating agencies and marks a stunning reversal for the country, which had been an investor favorite on the back of a stable democracy, growing gold mining and a nascent oil sector.

Loans taken to support oil production and pandemic spending had pushed debt service costs to over half of the government revenues by early 2022. As the government printed money to cover its costs, bond yields have soared, reaching 50% this month from 21% in March. The government also moved slowly and appeared to ignore the economy’s precarious situation in its attempts to borrow more from international markets, domestic banks and the central bank.

Despite domestic borrowing absorbing 85% of all debt issued, President Nana Akufo-Addo promised creditors there would be no haircuts on international debt—a move that would have seriously impacted Ghanaian banks.

Now, Ghana is spreading the pain to international bondholders who will be forced to take on losses as high as 30% and forgo interest payments for three years. This debt reduction will allow Ghana to qualify for an IMF deal to support the government while large deficits are slowly unwound.

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