Ghana has reached a landmark agreement with its official creditors to restructure $5.4 billion of loans, the finance ministry announced on Friday. The deal is a vital step in the country’s quest for debt relief as it faces the worst economic crisis in a generation.
The agreement with bilateral lenders including China and France was key to unlocking new International Monetary Fund (IMF) financing and will allow Ghana to access another $600 million under its $3 billion bailout program.
IMF Managing Director Kristalina Georgieva welcomed the announcement in a statement, adding the agreement “clears the path for IMF Executive Board consideration” of the first review of Ghana’s program.
The West African country, which defaulted on most of its overseas debt in December 2022 after debt servicing costs soared, restructured most of its local debt and also needs to reach a deal with private holders of about $13 billion in international bonds.
“The Government of Ghana commends the support and cooperation of its Official Creditors in reaching this agreement, which demonstrates a mutual commitment to restoring debt sustainability in line with the International Monetary Fund (IMF) program targets,” the office of Finance Minister Ken Ofori-Atta said on X.
The ministry later published a statement saying terms were “expected to be formalized in a memorandum of understanding” which will be dealt with bilaterally with all creditors.
The Ghana agreement is in line with the Common Framework, a process set up during the COVID-19 pandemic by the Group of 20 economies to help low-income countries cope with the economic fallout of the health crisis.
Chad, Ethiopia, and Zambia have also made debt relief requests under the platform, which has seen slow talks due to coordination issues and disagreements over assessing the comparability of treatment between different types of creditors.
Ghana is aiming to cut $10.5 billion from its external debt repayments and interest costs that were due from 2023 to 2026 and implement an IMF reform program.
Ghana first sent “working proposals” for the debt restructuring to the official creditor committee in June 2023, having been locked out of international capital markets and seeing inflation spiral in the lead-up to its default.
Ghana is one of the world’s largest producers of gold and cocoa, but it has been hit hard by the coronavirus pandemic, which has reduced global demand for its commodities and increased its fiscal pressures.
The country’s debt-to-GDP ratio rose to 76.1% at the end of 2022, up from 62.4% a year earlier, according to the IMF. The fund projects that Ghana’s economy will grow by 4.7% in 2023, after contracting by 1.1% in 2022.
The debt deal is expected to boost Ghana’s prospects of recovery and development, as well as its ability to meet the Sustainable Development Goals and the Paris Agreement on climate change.
The deal also signals a positive sign for other African countries seeking debt relief from their official creditors, as the continent faces a looming debt crisis amid the pandemic.
Source: Reuters
