Ghana: Political uncertainty complicates debt restructuring talks
Political uncertainty, economic analysts assert, complicates debt restructuring talks by the current government.
Mark Bohlund, Senior Credit Research Analyst with REDD Intelligence posit that Ghana currently faces political change in the upcoming 2024 elections with no guarantee that the next government will abide by the terms and conditions agreed in the debt restructuring programme (both local and foreign) by the current government.
“You could definitely argue that external bondholders would be better off seeking to close a restructuring deal with the current government. However, there’s likely to be enough opposition among creditors to frustrate such a process with many wary that whatever is agreed with the current government is unlikely to be upheld were there to be a shift in political power at the next elections,” he remarked.
“Access to credit has now been cut off and will take a long time to re-establish, necessitating a radical change in how Ghanaian politics are run. It is an open question if this can be done within the two main parties through a promotion of younger officials or if we will see new parties taking over and replacing them,” he added.
Investors are still reeling from the last surprise that Ghana threw at them. In a change of strategy a week before Christmas, the government suspended interest payments on $13 billion of eurobonds as well as commercial loans and most bilateral obligations pending an agreement with creditors. That stunned investors who had hoped for a more consensual procedure.
The country’s currency has resumed a selloff. While the cedi rallied the most in emerging markets in December, it has tumbled 20% since Dec. 19 when the announcement was made.
The action has also complicated the country’s path back into international capital markets to which it has lost access.
However, its priority may be to unlock $3 billion assistance from the International Monetary Fund, for which it won an in-principle agreement in December.
“The declaration of the suspension of most external debt servicing without a consent solicitation process was a change of tack from a strategy that had previously been more investor-friendly than other debt distress cases,” Bohlund said.
“It does indicate that the government strategy has abandoned any hopes of regaining Eurobond market access before the December 2024 elections and is focusing on unlocking IMF funds as quickly as possible.”
The decision led S&P to become the first ratings agency to downgrade Ghana’s external debt to “selective default.”
Even though Finance Minister Ken Ofori-Atta said authorities would start restructuring talks with external bondholders in the second half of the week of Dec. 12, no offer has been publicly made.
Meanwhile, local-bond investors pushed back after the government published a bond swap offer. Negotiations led to an agreement to exempt pension funds from the swap and the eventual publication on Christmas Day of a revised debt swap offer with new exit bonds.
“Government has shown total disregard for the contractual rights of individual bondholders and has made no effort to structure reasonable consultations. We have been presented with painfully stark, impoverishing and unsustainable choices. This is only possible because of the absence of effective representation,” the Ghana Individual Bondholders Forum said in a statement.
The man who’s overseeing Ghana’s journey back to debt sustainability is facing an uncertain future himself. In December, Ofori-Atta survived a censure motion by the parliamentary minority to be removed over the crisis, and calls for him to step down have resumed early this year.
While Ghana has no dollar debt maturing until July 2023, it faces GHS 43.5 billion in domestically-sold local-currency bonds maturing through the end of June, according to data compiled by Bloomberg.
Bondholders are waiting for restructuring proposals on about $8 billion of local bonds and $13 billion of dollar notes. On top of that, it has $663 million coupon payments on dollar debt.
