The IMF has approved a $3bn loan to Ghana after the west African country’s creditors, including China, agreed to a crucial debt-restructuring that is vital to resolving Accra’s long-running economic and financial crisis.
The approval, which will immediately release $600mn, caps the first stage of a prolonged saga over the $58bn of external and domestic debts that Ghana ran up over the past 15 years.
The IMF’s decision to move ahead with the bailout will be welcomed by other countries struggling to reach agreements with their lenders over how to deal with debt woes.
Disagreements between western creditors and Beijing over how best to restructure outstanding loans and bond payments have added to the burden facing some of the world’s most financially troubled countries, such as Zambia and Sri Lanka.
Ghana owes about $4bn to lender nations, including about $1.5bn to China. But its debts to commercial creditors are much larger, at about $14bn, including roughly $13bn owed to holders of its eurobonds. It also has about $24bn of domestic debts, mainly to local banks and pension funds.
Accra stopped paying most of its external debts at the end of last year after reaching a preliminary agreement with the IMF, and has embarked on what its finance minister has called a “punitive” restructuring of its domestic debts. Ghana has had to agree to measures designed to raise more tax revenue and stop the central bank from buying the government’s debt.
Announcing the agreement late on Wednesday, Kristalina Georgieva, IMF managing director, said Ghana was putting in place a “strong programme of reforms to revitalise growth and reduce the country’s debt burden”.
While countries have now agreed in principle to restructure the country’s debts, the IMF stressed that “securing timely . . . agreements” with Ghana’s private-sector creditors was “essential” for the bailout’s success.
Kevin Daly of Abrdn, an asset manager and member of a committee representing private-sector bondholders, said the IMF deal implied creditors would take a $10.5bn hit between 2023 and 2026. That figure amounts to about half of Ghana’s current obligations over the period.
He said China had helped to get the initial agreement over the line but wrangling over terms between official and private-sector creditors could delay a final deal into the third quarter of this year.
Ghana’s already precarious finances were thrown into crisis after the twin shocks of the pandemic and Russia’s invasion of Ukraine, which helped push up inflation to a two-decade high of 54 per cent in December.
The debt crisis has shattered Ghana’s president Nana Okufo-Addo’s ruling New Patriotic party’s reputation for fiscal probity. It has also raised the chances that other African countries will seek debt restructuring and IMF bailouts. The fund estimates that more than 20 countries, including Kenya, another one-time investor favourite, are in danger of debt distress.
While the agreement with Ghana calls for government spending to be reined in and taxes raised, it includes some measures to protect the most vulnerable. That contrasts with harsher packages the fund imposed in the 1990s.
Zambia secured an IMF bailout last year following assurances from official creditors, led by China, that they would provide relief on their loans to the southern African nation, after it defaulted in 2020.
But China has since failed to agree on specific restructuring terms with other creditors, leaving Zambia’s finances in limbo and holding up a second IMF payment.
Source: Economy - ft.com
