Ghana’s government has recently written off half of its 77.6 billion cedis ($7 billion) debt owed to the central bank. The remaining debt was replaced with a lower-yielding, 15-year bond as part of the country’s effort to restructure its domestic debt, a prerequisite to qualify for the next installment of the $3 billion International Monetary Fund (IMF) rescue loan. Now, Ghana aims to focus on negotiating with external creditors.
In February, the first phase of domestic debt restructuring was concluded, with 85% of eligible holders exchanging their local currency bonds for new longer-dated bonds with lower interest rates. Notably, even the central bank participated in this exchange, converting 17 billion cedis.
Currently, the government is working on restructuring 123 billion Ghana cedis of domestic debt, encompassing various elements like domestic U.S. dollar bonds, cocoa bills, pension funds, and debts owed to independent power producers and the central bank.
Though the central bank initially wanted to be excluded from the debt restructuring, the IMF insisted on including it for Ghana to achieve its debt restructuring target successfully.
The central bank debt that was written off mainly consisted of non-tradable components, including overdrafts to the government and the cocoa marketing board, a COVID-19 bond, and other legacy debt spanning 15 years. The interest payments on most of these debts were tied to the central bank’s main interest rate, which currently stands at 30%.
To facilitate the transaction, the government plans to exchange the principal amount of the debt at a 0.5 ratio with a 2038 bond issued in February, carrying an interest rate of 10%, with 5% paid in kind in 2023 and 2024.
The sources with direct knowledge of the transaction confirmed the final terms, but the exact date of execution remains undisclosed as the matter is confidential. Both the finance ministry and the central bank have not responded to requests for comment.
Ghana faced its worst economic crisis in a generation and defaulted on most external debt in December. As a measure to address this crisis, the country aims to reduce its overseas debt payments by $10.5 billion over the next three years.
However, the debt restructuring had a significant impact on the central bank, leading to a record loss of about 50 billion cedis. This loss is expected to remain on the books for the next five years or so, according to a source from the central bank.
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