ACCRA: Ghana plans to reduce its debt-to-gross domestic product (GDP) ratio to 50% by 2028 from more than 100% currently, Finance Minister Ken Ofori-Atta says, adding that interest payments are absorbing between 70% and 100% of government revenues.
Ghana is in talks with the International Monetary Fund (IMF) for a support package to help relieve debt distress as the West African country faces its worst economic crisis in a generation.
The government aims to reach an IMF staff-level agreement within the “next few weeks”, the director of the treasury and debt management, Samuel Arkhurst, said at a press briefing on Monday, during which Ofori-Atta outlined restructuring plans.
The minister warned the government may not be able to fully service Ghana’s untenable debt if action was not taken.
“The extent to which our interest charges consume some 70% and sometimes 100% of our revenue is something that is not sustainable,” he said.
On Sunday, Ofori-Atta said Ghana’s government had finished its debt sustainability analysis and would launch a domestic debt exchange on Monday to help restore macroeconomic stability.
Local bonds will be exchanged for new ones maturing in 2027, 2029, 2032 and 2037, and their annual coupon will be set at 0% in 2023, 5% in 2024 and 10% from 2025 until maturity.
The finance ministry also said that eligible holders of more than 60 notes maturing between 2023 and 2039 and worth approximately 137.3 billion Ghana cedis (US$10.5bil or RM46bil) were invited to apply for the debt exchange until Dec 19.
New domestic bonds with semi-annual coupon payments will be issued on Dec 23, it said in an instruction letter to bondholders. It did not specify the consequences of missing the deadline.
Investors will receive new 2027, 2029, 2032 and 2037 bonds in respective proportions of 17%, 17%, 25% and 41% for the amount of the bonds they submit to be exchanged, the document said.
External debt restructuring plans would be announced in “due course”.
He assured individual domestic bondholders that ongoing debt restructuring plans would not affect them, and that all Treasury bill holders would be paid in full for their investments.
Mutual funds and pension funds, however, through which most individual Ghanaians hold bonds, will be viewed as “collectives” rather than individuals under the plan, Arkhurst said.
“The plan essentially dries up the secondary market for bonds and all but removes the ability of fund managers to sell bonds to meet redemptions,” said Jerome Kuseh, a financial analyst with Ghana-based CediTalk.
“This leaves them either selling treasury bills or needing to find a gap financing source to pay investors,” he added.
Ofori-Atta said the restructuring will be accompanied by fiscal measures, and details of a scheme to protect banks, pensions and mutual funds will follow later.
Ghana has been struggling to reduce debt, rein in inflation, and strengthen its plummeting currency.
Aggressive reforms, including government spending cuts and several central bank lending rate hikes, have provided little respite.
“Our total public debt stock, including that of state-owned enterprises and all, exceeds 100% of our GDP,” Ofori-Atta said.
Arkhurst noted that a budget presented last month would need to be revised once the debt exchange programme was launched.
As talks with the IMF move forward, “fiscal discipline will be extremely key”, he said. — Reuters