Ghana secures $3 billion IMF deal after creditors agree to debt restructuring

The West African country’s creditors, including China, agreed to a significant debt-restructuring that is key to solving Accra’s long-running economic and financial crisis.

The approval, which will immediately release $600 million, caps the first phase of a long-running saga of more than $58 billion of Ghana’s external and domestic debts over the past 15 years.

The IMF’s decision to go ahead with the bailout will be welcomed by other countries struggling to reach agreement with their lenders on how to deal with the debt crisis.

Disagreements between Western creditors and Beijing over restructuring outstanding debts and bond payments have increased the burden on some of the world’s most financially troubled countries, such as Zambia and Sri Lanka.

Ghana owes about $4 billion to creditor countries, including about $1.5 billion to China. But its debt to commercial creditors is huge, around $14bn, of which about $13bn is owed to holders of its Eurobonds. It also has about $24 billion of domestic debt, mainly from local banks and pension funds.

Accra stopped paying most of its external debt late last year after reaching a preliminary agreement with the IMF, and its finance minister has begun a “punitive” restructuring of its domestic debt. Ghana has had to agree to measures designed to raise more tax revenue and prevent the central bank from buying the government’s debt.

Announcing the deal late on Wednesday, IMF Managing Director Kristalina Georgieva said Ghana was pursuing “a robust program of reforms to revive growth and reduce the country’s debt burden”.

While the countries have now agreed in principle to restructure the country’s debts, the IMF insisted that “securing a timely … agreement with Ghana’s private sector creditors was “essential” to the success of the bailout. .

Kevin Daly, an asset manager and member of a committee representing private sector bondholders, said the IMF deal implied creditors would lose $10.5 billion between 2023 and 2026. This figure is almost half of Ghana’s current obligations over this period.

He said China had helped broker an initial agreement on the line, but wrangling over terms between official and private-sector creditors could delay a final deal in the third quarter of this year.

Ghana’s already precarious finances were strained after the twin shocks of the pandemic and Russia’s invasion of Ukraine helped push inflation to a two-decade high of 54 percent in December.

The debt crisis has damaged the reputation of fiscal probity of Ghana’s President Nana Okufo-Addo’s ruling New Patriotic Party. It has also raised the possibility that other African countries will seek debt restructuring and an IMF bailout. The fund estimates that more than 20 countries, including Kenya, another one-time favorite investor, are at risk of a debt crisis.

While the agreement with Ghana seeks to rein in government spending and raise taxes, it includes some measures to protect the most vulnerable. This is in stark contrast to the austere packages of funds put in place in the 1990s.

Zambia secured an IMF bailout last year after assurances from official creditors, led by China, that they would provide relief on its debt to the southern African nation after it defaults in 2020.

But China has since failed to agree specific restructuring terms with other creditors, leaving Zambia’s finances in limbo and stalling a second IMF payment.