Restructuring Ghana’s external debt may now be hard to avoid, despite the current government’s reluctance to touch sovereign Eurobonds in such a potential exercise, according to several market participants interviewed by the Singapore-based financial research firm, REDD Intelligence.
“Ghana is a country that promises a lot but is still underperforming; the government has been unable to turn the economy around,” he said in his latest report on Ghana.
Mark Bohlund, senior analyst at REDD Intelligence, first highlighted the likely need for Ghana’s sovereign debt restructuring in October 2021, but general market talk about its inevitability only intensified. over the past month after the country formally approached the International Monetary Fund (IMF) for assistance.
In the latest REDD CEEMEA podcast, the research firm’s team discussed Ghana’s growing debt situation and the challenges of including domestic debt in any potential restructuring, and looked at collective action clauses in Ghana’s sovereign Eurobonds.
“After several months of hoping the country would be able to increase its revenue streams and tighten fiscal policy to avert an impending balance of payments crisis, most international investors are now reluctantly assessing the timing and format. potentials of an expected debt exercise. The next key step will be a debt sustainability assessment by the IMF, which is expected by the end of 2022 or early 2023, and will help determine whether the country has a liquidity or debt sustainability problem. debt, agreed two sovereign strategists and the fund. administrator”.
He added that “the market consensus is that the African nation [Ghana] unlikely to regain market access any time soon, with or without an IMF program. With just over $7 billion in total international reserves and no major external debt repayments until 2025, Ghana likely has up to 12 months before running out of cash, all three agreed.
In addition, REDD Intelligence said an IMF economic program could take place in the first quarter of 2023, as the country has to pay billion-dollar Eurobond coupons a year for the next few years.
Liquidity or solvency problem?
The REDD intelligence market strategist said the country needs to adopt two main scenarios.
In the first scenario, the country has a liquidity problem and therefore discussions on the IMF program will then focus on generating a primary surplus, restoring macro-stability and resuming access. to market by 2025, when $1.5 billion of Eurobond maturities are due.
In the second scenario of Ghana having a solvency problem, the strategist expected prolonged restructuring – either through the G20 Common Framework, similar to Chad, Ethiopia and Zambia, or a classic default , similar to Sri Lanka.
In its July 2021 Article IV on Ghana, the IMF stated that public debt is sustainable as long as the authorities’ medium-term consolidation plan is implemented in a rigorous and credible manner to improve the primary balance, place the debt on a downward trajectory and guarantee market access. .
“I expect a more classic default scenario with a trigger as early as Q1 2023,” the strategist said.
According to this strategist, the IMF could still engage in program discussions and approve a program as part of its lending policy in the event of arrears.
This would require Ghana to stay up to date on its multilateral commitments, while negotiations with the private sector should be in good faith, but will likely be protracted.