News Guide Africa

Tag: G20 Common Framework

  • Ghana securing a $10.5bn debt relief looks bleak – Economist predicts

    Adnan Adams Mohammed

     

    An economist has predicted that Ghana may find it difficult to get a debt relief of about US$10.5 billion from external creditors including bilateral lenders.

     

    The economist asserts that, experiences from Zambia and others suggest that the road ahead for the nation to secure US$2.6 billion annually in debt relief for the next four years will be difficult.

     

    Already, Fitch rating agency has indicated that Ghana has a long way to go to restructure its more than US400 billion debt and predicting a second round of Domestic Debt Exchange Programme (DDEP). The country has already submitted a proposal on debt restructuring to its official creditors. Speaking in an interview, the economist said, the country may not get a favourable deal from the external creditors.

     

    “It’s going to be a bit difficult because we’ve seen similar instances with the likes of Zambia. But there’s been a major contestation around how we treat certain creditor groups”, Policy Analyst and Economist, Dr. Theo Acheampong posited.

     

    However, a team of experts from the International Monetary Fund (IMF), led by Stéphane Roudet, have concluded their visit to Ghana, which took place from June 8 to June 15, 2023.

     

    The visit aimed to engage with Ghanaian authorities and stakeholders to assess recent economic developments and review the implementation of the Fund-supported program approved on May 17, 2023.

     

    In a statement issued at the end of the visit, Mr. Roudet acknowledged positive signs of stabilization in the Ghanaian economy.

     

    “In discussing progress on the debt restructuring operations, we reiterated that timely restructuring agreements with creditors are essential to secure the expected benefits of the Fund-supported program.”

     

    Apparently, furthering his argument, Dr Acheampong thinks Ghana is too much exposed to Eurobonds and other commercial loans.

     

    “So I think, the road ahead is going to be quite challenging in the sense that all the $2.6 billion they [creditors] need to get every year, it probably will not amount to that and this is just on the basis of some of the evidence we’ve seen with other countries that have attempted to go down this road”.

     

    “It does make it quite difficult largely because most of the commercial creditors have different obligations to their shareholders, but also because Ghana in a way defaulted on making the interest payment on a number of these debt obligations since December of last year”.

     

    Again to him, it does make the process rather much more complicated since Ghana has already indicated that it is looking at haircuts of about 30% to 50%.

     

    “I think that is going to be a bitter pill to swallow for a number of these commercial creditors”, he added.

     

    The move could be seen as a major step for the government to get the Official Creditor Committee including the Paris Club formed in May 2023 to consider the country’s debt restructuring programme.

     

    This also signifies the beginning of a more detailed negotiating process that will likely see a number of proposals being exchanged.

     

    Although, Reuters have said, the ‘working proposal’ is however not legally binding.

     

    The Common Framework process was set up by the G20 in 2020 to bring China and other newer creditor nations into joint sovereign debt restructuring negotiations, for its external debt rework.

     

    Ghana is hoping to cut about $10 billion out of a total of $52 billion over the next three years to successfully implement the International Monetary Fund programme.

     

    The country’s debt to China and members of the Paris Club is estimated at $5.4 billion. As of December 2022, the total external debt stood at $28.9 billion.

     

    It has already completed a Domestic Debt Exchange Programme in February 2023 in which about 65% of bondholders took part in the exercise.

     

     

  • External Debt Relief: Ghana asked to address energy & revenue losses

    External Debt Relief: Ghana asked to address energy & revenue losses

    Adnan Adams Mohammed

     

    The German Government has asked the Ghana Government to as a matter of urgency to outline and implement measures to address the hefty annual energy sector losses and domestic revenue mobilisation efforts.

     

    The Germans, have shown willingness to join Ghana’s external debt restructuring arrangement and also talk to China if only managers of the economy can address the above challenges as soon as possible before they get involved.

     

    According to the German Ambassador to Ghana, Ghana has one of the lowest tax to GDP ratios, not even 13%.  Also, they are astonished with the annually energy sector new debt of US$1.5 piled up. The European country gave the conditions as a reaction to follow-up of President Akufo-Addo’s call on German Finance Minister, Christian Lindner, to “encourage” China to accept Ghana’s proposal for debt relief.

     

    “Let me point to three elements. The biggest loss maker in Ghana is the energy sector. This in this sector alone, each year, $1.5 billion new debt is piled up. So if that is not solved and you can ask the IMF for $10 Billion, you still will not solve the problem in the medium term”, German Ambassador to Ghana, Daniel Krull, in an interview said that his country is willing to help only if certain conditions are met.

     

    “So there has to be an answer in Ghana to the 50% technical and non-technical losses in the energy sector. If that is not resolved, I don’t see how we can make find a sustainable solution for the financial problems of the country”.

     

    He added “the second part is on the other side of the budget and that is the revenues. Ghana has one of the lowest tax to GDP ratios, not even 13%. So we have been cooperating with the local authorities and setting up a very smart system of property tax collection. So I think that is an important way forward and this has to be done and processes and decision making have to be faster to meet the goals, to be able to meet the targets that have been agreed with the IMF”.

     

    China has about US$1.7 billion of the entire external debt portfolio of US$5.7 billion which Ghana is seeking to restructure.

     

    The Finance Minister, Ken Ofori-Atta, last week postponed a planned high-level government delegation to China to late March 2023.

     

    This is owing to the upcoming National People’s Congress of China meeting scheduled for early March.

     

    However, the Finance Minister said bilateral talks will continue ahead of this important mission.

     

    The government is seeking under the G20 Common Framework for Debt Treatment to get debt forgiveness from some bilateral and multilateral partners.

     

    Managing Director of the IMF, Kristalina Georgieva, confirmed in January 2023 that Ghana just became the fourth country to seek treatment under the Common Framework.

     

    The German government has assured that it is willing to get involved in the process but want others on the G20 Framework to also show willingness

     

    “First of all, we insist that those measures that can be taken here in this country have to be taken. The second condition is that, yes, we are willing to take our share of responsibility as one of the major bilateral donors to Ghana”, Ambassador Krull noted.

     

    “But only if all the others also join in this effort. And there is a multilateral framework that was set up exactly for this kind of crisis and we urge and try to convince all stakeholders in this process to stick to this agreed framework. It’s the G 20 framework,” he said.

     

    The Ambassador also noted that he’s “still amazed on the procedures for how the budget is set up and how difficult it is to get an understanding of how this all works. And I think that is something that has to be approved. He is however confident that with the necessary political will new opportunities will be created to enhance economic growth.”

     

    In an earlier publication, Fitch Solutions, an international rating agency, downplayed Government of Ghana’s expressed optimism to secure a successful implementation of an external debt restructuring following successfully completion of a Domestic Debt Exchange Programme (DDEP).

     

    The completed DDEP, aimed at alleviating the country’s debt burden in a transparent and efficient manner, would help pave the way for a much-needed external debt restructuring programme.

     

    As government jubilated and kept hopes high, the international rating agency, showed skepticism about the deal’s efficiency, as it has described Ghana’s debt exchange programme as a distressed one. This is  under its criteria, given this material reduction in terms vis-à-vis the original contractual terms, and given that the exchange is needed to avoid a traditional payment default. But, the Minister of Finance was confident that the DDEP will build momentum for the country’s external debt restructuring programme.

     

    “The DDEP, part of the government’s broader fiscal policy to address the country’s current macroeconomic challenges, restore macroeconomic stability and put Ghana on a sustainable path to growth and development, has ended with 85% participation”, Ken Ofori-Atta said when addressing Parliament, last week.

     

    “This success, will also build momentum for the external restructuring programme, which has also commenced.”

     

    He said as part of this process, Ghana has officially asked its bilateral creditors for a Debt Treatment initiative under the G-20 Common framework.

     

    Mr. Ofori-Atta also stated that negotiations had already begun with commercial creditors, with the establishment of a Creditor Committee to assess Ghana’s request for debt treatment under the Common Framework expected by the end of February.

     

    He acknowledged the importance of the DDEP in helping the government meet its debt sustainability target of 55% of debt-to-GDP in present value terms by 2028.

     

    “The Government recognises the continued importance of the DDEP in closing the financing gap and enabling the government to meet the debt sustainability target,” said Ofori-Atta.