Similar to Zambia, Ghana faces lengthy negotiations with creditors on debt restructuring despite IMF programme approval
In a striking parallel to Zambia’s debt restructuring ordeal, Ghana finds itself on a similar path, potentially encountering delays in reaching an agreement with private and bilateral creditors on its external debt restructuring program, despite its participation in the G20 Common Framework. While Zambia had sought support under the G20 Common Framework in February 2021 and secured a 38-month Extended Credit Facility (ECF) in August 2022, it has yet to finalize a deal with its creditors. This cautionary tale raises concerns that Ghana may face comparable hurdles as it navigates its own debt restructuring process.
Ghana’s recent approval of a $3 billion bailout program by the International Monetary Fund (IMF) Board is a step towards stabilizing its financial situation. The country now aims to secure $10.5 billion in relief for external debt service payments during the implementation phase of the Extended Credit Facility, equivalent to approximately $2.6 billion annually. However, Economist and Political Risk Analyst, Theo Acheampong, warns of the potential difficulty Ghana may encounter in garnering the support of private and commercial creditors. Historically, these creditors have exhibited reluctance to participate in debt relief efforts initiated by defaulting nations. This poses a significant challenge for Ghana, as its external debt restructuring program primarily involves addressing $14 billion owed to private and commercial creditors, overshadowing the $4 billion owed to bilateral creditors.
Acheampong sheds light on the magnitude of Ghana’s financial predicament, highlighting a substantial financing gap of $15.05 billion between 2023 and 2026 that urgently needs addressing. To bridge this gap, the country will heavily rely on official financing from institutions such as the IMF and World Bank, amounting to $4.5 billion. Simultaneously, successful restructuring of external debt totaling $10.5 billion over the 2023 to 2026 period will be a critical component in closing Ghana’s financing shortfall.
The intricacies surrounding debt restructuring underscore the multifaceted challenges faced by Ghana as it strives to secure a comprehensive agreement with its creditors. Private and commercial creditors, renowned for their cautious approach in supporting debt relief initiatives, pose an additional layer of complexity and uncertainty to the negotiations. Ghana’s ability to rally the necessary support from these stakeholders will significantly impact the success of its debt restructuring efforts, thereby determining the country’s financial stability and its capacity to pursue sustainable development goals in the years ahead.
To surmount these hurdles, Ghana’s government must engage in extensive consultations with international financial institutions, creditors, and other relevant stakeholders. Collaborative efforts, focused on formulating effective strategies and navigating the intricate web of creditor demands, will be crucial. Transparent and proactive communication channels should be established to build trust and foster a cooperative environment for negotiations.
The outcome of Ghana’s debt restructuring journey carries profound implications, not only for the country’s financial stability but also for its broader economic prospects. A successful resolution will instill confidence among investors, bolstering Ghana’s access to international capital markets and facilitating its pursuit of sustainable growth and development. Conversely, a protracted and challenging process could erode investor confidence, impede economic progress, and hinder Ghana’s ability to meet its financing requirements.
As Ghana traverses this critical phase, it is imperative for all parties involved to exhibit flexibility, empathy, and a shared commitment to achieving a mutually beneficial resolution. By navigating the complexities with prudence and determination, Ghana can hope to secure a favorable debt restructuring agreement that lays the foundation for a brighter economic future.