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Deferral Of debt Payments Good omen  For The Cedi … says Ministry of Finance

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Mr. Ken Ofori-Atta, Finance Minister

The suspension of debt service payments on aspects of Ghana’s external debt – Eurobonds, Commercial loans and most Bilateral debts – due to ongoing debt restructuring exercise is expected to boost appreciation of the local currency, the cedi, a statement from the Finance Ministry, which was released yesterday has said.

But for restructuring exercise, the reserves at the Bank of Ghana would have been used to service these debts, thereby worsening the strength of the Cedi against the dollar.

However, with the suspension of the debt payment for the time being, these reserves at the BoG will be released to strengthen the performance of local currency against the foreign ones.

The rapid depreciation of the cedi, which has lost over 54% of its value between January and November 2022, added some GH¢93 billion to the public debt, but an appreciation of the local currency has recovered about 40% of the slide.

The COVID-19 pandemic, rising global food prices, rising crude oil and energy prices, and the Russia-Ukraine war adversely affected Ghana’s macro-economy, with spill overs to the financial sector.

The combination of adverse external shocks exposed Ghana to a surge in inflation, a large exchange rate depreciation and stress on the financing of the budget, which taken together have put the public debt on an unsustainable path.

Given the magnitude of the economic and social crisis that Ghana is confronted with, the GH¢137 billion domestic debt exchange programme launched earlier will not be enough to close the large financing gaps that Ghana faces over the coming years.

The Chronicle understands that the latest debt sustainability analysis demonstrated that Ghana is faced with a significant financing gap over the coming years, revealing that public debt is unsustainable.

Out of the GH¢467.4 billion total public debt stock as of October 2022, domestic debt was GH¢195.7 billion while external debt represents GH¢271.7 billion.

This represents approximately 75.9% of Gross Domestic Products (GDP) and the debt restructuring measures target to bring it down to 55% in the medium term.

The Chronicle is further told that total public debt stock exceeds 100% of GDP and these debts, including that of State-Owned Enterprises and all.

Projected interest payment on sovereign debt for 2023 is estimated at GH¢52.6 billion.

Debt servicing is now absorbing more than half of total government revenues and almost 70% of tax revenues.

A total of GH¢137  billion of the domestic is being repackaged in a debt exchange programme, but the total amount of external debt on which interest payment has been suspended has not being stated.

According to the Ministry, the suspension will not include the payments of multilateral debt and new debts, whether multilateral or otherwise contracted after December 19, 2022 or debts related to certain short term trade facilities.

The statement explained that government is evaluating certain specific debts related to projects with the highest socio-economic impact for Ghana which may have to be excluded.

Government is committed to engaging in discussions with all of its external creditors to make Ghana’s debt sustainable through a fair, transparent and comprehensive debt restructuring exercise, in line with international best practices.

$3 billion IMF staff-level agreement

Ghana and the International Monetary Fund (IMF) reached a Staff Level Agreement on economic policies and reforms to be supported by a new three-year arrangement under the Extended Credit Facility (ECF) of about $3 billion.

4 legged approach 

The debt restructuring which is expected to deal with high interest payments on the public debt is part of a four legged approach adopted by the government in 2023 budget, aimed at alleviating the pressures on the national budget and restoring debt sustainability.

4 New Ghana bonds

Domestic debt operation involves an exchange for new Ghana bonds with a coupon that steps up to 10% as soon as 2025 (with a first interest payment in 2024) and longer average maturity.

Maturing dates for the new bonds

Existing domestic bonds as of December 1 2022 will be exchanged for a set of four new bonds maturing in 2027, 2029, 2032 and 2037.

Predetermined allocation ratios

Predetermined allocation ratios are 17% for the short bonds, 17% for the intermediate bond, 25% for the medium-term bond and 41% for the long-term bond.

Annual coupon rates

The annual coupon rates on all of these new bonds will be set at 0% in 2023, 5% in 2024 and 10% from 2025 until maturity. Coupon payments will be semi-annual.

Eligible holders, who deliver valid offers at or prior to the expiration date that are accepted by the country, will receive at the settlement date in exchange for their eligible bonds accepted, the same aggregate principal amount distributed across new bonds due dates.

Offers end on December 19

Offers may only be submitted starting from December 5, 2022, and ending at 4:00 p.m. (Greenwich Mean Time (GMT)) on December 19, 2022.

However, government has extended the expiration date to Dec 30th 2022.

Only registered holders eligible

The invitation is available only to registered holders of eligible bonds that are not individual investors or that are otherwise authorised by the Government of Ghana, in its sole discretion, to participate in the Invitation.

Government said eligible holders tendering their eligible bonds pursuant to the invitation will receive new bonds of the country on the terms and subject to the conditions described in the Exchange Memorandum.

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