Ghana faces long road to debt restructuring as Fitch highlights challenges; warns of potential second round of DDEP
In a recent report, Fitch Ratings, the renowned UK-based rating agency, has emphasized that Ghana has a formidable task ahead in restructuring its staggering debt burden, which currently exceeds 400 billion. The agency further indicated that the West African nation may need to embark on a second round of the Domestic Debt Exchange Programme (DDEP), adding to the challenges already faced by the country.
Ghana, in its quest to find some relief, has been actively seeking debt relief of around $10.5 billion from its external creditors over a four-year period. However, Toby Iles, the Senior Director in charge of Emerging Market Economies at Fitch, expressed concerns over the slow progress in the talks on external debt restructuring. Notably, an official creditor committee meeting, which could potentially pave the way for substantial negotiations, is yet to take place. Iles suggested that Ghana’s experience with the common framework for debt restructuring could be different, but the historical sluggishness does not bode well for a swift resolution.
Highlighting the complexity of the situation, Iles noted, “There’s still quite a lot of work to do. And especially as mentioned, there may still be a lot happening on the domestic debt front.” The completion of the domestic debt exchange, while providing some respite for Ghana, does not encompass all domestic bonds. This implies that there could be additional measures required to address the challenges posed by the country’s domestic debt, which could further complicate the overall debt restructuring process.
The impact of the completed domestic debt exchange has been notable in terms of enhancing Ghana’s liquidity. The reduction in interest payments and principal repayments in the near term has substantially eased the burden. Fitch estimates that by 2023, the reduction in debt service interest and principal as a percentage of GDP will amount to approximately 5%, a significant and meaningful improvement for the country.
However, Fitch cautioned that while liquidity has improved, it does not adequately address Ghana’s solvency concerns. The Senior Director at Fitch highlighted the potential issues that may arise in the future, stating, “Though liquidity has improved, it doesn’t really address Ghana’s solvency issues. And so come three or four years from now, when coupon rates pick up again, repayment pick up again, the problem starts again.” This underscores the importance of concluding negotiations with Eurobond holders, as unresolved matters with these creditors could hinder Ghana’s long-term financial stability.
The path to debt restructuring in Ghana remains challenging, requiring a multi-faceted approach to tackle both domestic and external debt burdens. The completion of the domestic debt exchange has provided temporary relief by improving liquidity. Nonetheless, Fitch’s cautionary outlook on solvency issues looming in the future emphasizes the urgency to address the ongoing negotiations with Eurobond holders.
As Ghana seeks to overcome its financial challenges, it is crucial for the country’s policymakers to take decisive actions that balance short-term relief with long-term sustainability. The successful resolution of Ghana’s debt restructuring process will require close collaboration between the government, external creditors, and international financial institutions. Only through concerted efforts and effective negotiation strategies can Ghana pave the way towards a more stable and prosperous economic future.
