It is probable that the International Monetary Fund would refuse to provide Ghana with the $3 billion bailout package if its foreign creditors did not provide assurances.
In order for Ghana to be eligible for the long-awaited assistance from the International Monetary Fund (IMF), the country must fulfill a number of essential requirements, the most important of which concerns the reorganization of debt on both the national and international levels.
In terms of the reorganization of domestic debt, it’s a bingo! The government was successful in reorganizing approximately 98 billion Ghana cedis worth of its domestic bonds with an 85 percent participation rate.
The external level of restructuring is the next obstacle that needs to be overcome.
About 72 percent of the external debt will be eligible for debt treatment, which means that out of the $31 billion that is owed to external creditors, debt treatment will be applied to just $22 billion!
Let’s break this down into its component parts: Out of the total amount of $22 billion, $1.6 billion belongs to nonresidents who bought domestic bonds and has already been restructured; $14.6 billion is owed to commercial creditors (including creditors of Eurobonds); and $5.4 billion belongs to bilateral creditors, with China and the Paris Club being heavily involved.
It was an opportunity for most developing economies to exert final pressure on restructuring talks during the IMF-World Bank spring meeting, and Ghana left no stone unturned in its efforts to do so.
To persuade external creditors to participate in negotiations, nine lawmakers joined a delegation under the direction of Finance Minister Ken Ofori-Atta and Bank of Ghana Governor Dr. Ernest Addison.
During the spring meetings, there were a number of calls made from a variety of perspectives urging creditors to speed up the process of talking about the operation of debt, particularly for developing economies.
China is a large bilateral creditor, and Zambia continues to serve as a test case for most countries considering the implementation of a debt operation exercise.
The talks over the country’s debt have come to a halt as a result of a deadlock between China and the West regarding the manner in which the debt will be restructured and the level of losses that each side is willing to accept.
According to the International Monetary Fund (IMF), Zambia will be qualified to receive about $188 million in financing (the first tranche out of a total package of $1.3 billion) once the Fund deems the review satisfactory.
The International Monetary Fund has informed Zambia that it requires its official creditors to move forward and establish an agreement on a debt treatment that is in line with the financial assurances they offered in July 2022 in order to remove any obstacles that may prevent the timely completion of the review.
The scenario in Ghana is identical to the one in Zambia, in which China does not appear to be present at the table where collective negotiations are taking place.
However, despite the fact that the situation appears to be hopeless, Mr. Ofori-Atta’s most recent tweet provided some rays of optimism.
According to him, Ghana conducted “productive restructuring talks” with a variety of international organizations, including the International Monetary Fund (IMF), the International Finance Corporation (IFC), and the Japan International Cooperation Agency (JICA).
While Ghana waits for approval from the executive board of the IMF, some of its economic indicators have begun showing significant improvement. For example, the country’s inflation rate fell for the third month in a row in March after having reached a more than two-decade high of 54.1% in December 2022.
Since the beginning of the year, the value of the available local currency has increased by an aggregated amount that is greater than 10%.
However, the World Bank has reduced its estimate of Ghana’s annual growth rate to 1.6%, which is lower than the estimates provided by the government. The ratio of debt to gross domestic product is expected to approach 99%, which is cause for concern.
Any cooperation from the West in this whole debt operation exercise should not be considered a “father Christmas move,” as the United States is getting increasingly belligerent in their appeals for other countries to select a side in the competition with China.
The type of concessions that Ghana and Zambia will need to make in order to receive debt relief will be contingent on what each country believes to be realistic for its long-term future, and figuring out how to handle future concessions in conjunction with Chinese investments in infrastructure will continue to be a challenge.