Ghana is on the brink of overcoming its debt default after successfully restructuring $13 billion worth of U.S. dollar bonds, marking a crucial step toward re-entering global capital markets.
This comes nearly two years after a severe economic crisis forced the country to suspend debt repayments.
The majority of bondholders agreed to exchange their bonds for new debt valued at $4.7 billion less, effectively reducing Ghana’s debt burden by more than $4 billion over the next two years, according to a government statement released on Thursday.
This significant restructuring effort comes as Ghana prepares for its general elections in December, with the economic crisis and its aftermath likely to play a key role in the political landscape.
President Nana Addo Dankwa Akufo-Addo, who is set to leave office after two terms, expressed optimism about the nation’s recovery, stating, “Today, our economy has turned a corner. We’ve accomplished what many deemed impossible — we have decisively resolved Ghana’s debt overhang.”
The financial crisis, which led to the debt restructuring, was driven by soaring inflation and a steep devaluation of the Ghanaian cedi against the U.S. dollar.
The situation was further worsened by global events such as Russia’s invasion of Ukraine in 2022.
Ghana was compelled to seek a $3 billion bailout from the International Monetary Fund (IMF) despite once being one of Africa’s fastest-growing economies.
As part of the IMF agreement, Ghana entered into complex negotiations with its major creditors to reduce its debt load.
The economic downturn also saw neighbouring Ivory Coast overtake Ghana as West Africa’s second-largest economy.
Despite the restructuring and the expected economic improvements, Ghanaians are still grappling with high inflation, which stood at over 21 per cent last month.
The IMF projects that the country’s public debt will fall below 80 per cent of GDP in 2024, a significant decrease from nearly 100 per cent in 2022.
This financial recovery, however, is expected to be a major issue in the December elections, where Vice President Mahamudu Bawumia will face former President John Mahama.
Ghana’s bond restructuring is the latest in a series of sovereign debt negotiations across the globe, following the wave of economic instability caused by the COVID-19 pandemic.
Ukraine, for instance, completed a restructuring of $20 billion in wartime debt in September after four months of negotiations. Zambia, which also utilized the G20-endorsed “common framework” for low-income countries, took four years to reach terms with creditors. Similarly, Sri Lanka secured a preliminary deal in September to restructure $13 billion in bonds, more than two years after its default.
Ethiopia is the next country in line for debt restructuring under the G20’s common framework, but the process has already become contentious.
A bondholder committee criticized the Ethiopian government’s proposed 18 per cent reduction on a $1 billion bond that defaulted last year, calling it “wholly inconsistent” with the country’s economic fundamentals.
The committee also raised concerns over the lack of transparency in Ethiopia’s dealings with its official creditors.