The Government of Ghana (GoG) has disclosed it plans to convert an estimated $3.3 billion of loans owed to the Bank of Ghana (BoG) into bonds, making the Central Bank the single largest holder of domestic government securities and exposing it to the ongoing debt restructuring process.

According to people familiar with the matter, the bonds, due to be issued by the finance ministry will also cover the interest to the Bank of Ghana.

Precise details pertaining the timeline for the securitization was not provided, but the government communicated its intention to conclude the restructuring of its public debt this quarter with a view to securing International Monetary Fund (IMF) boards approval by the end of March.

According to Bloomberg, the securitized central bank loan will be added to the list of domestic debt under restructuring. The new bonds would bring the central bank into Ghana’s ongoing debt restructuring process, under which the government is asking investors to swap out 137.3 billion cedis ($11.2 billion) worth of local government securities into new notes with less attractive terms. The voluntary exchange has a deadline of February 7, 2023.

Bloomberg further revealed that the restructuring is a key condition for Ghana to qualify for a desperately needed $3 billion bailout from the IMF. However, the IMF has also urged Ghana to stop borrowing from the central bank in order to secure the bailout, as previously reported.

Ghana’s Debt Journey

Ghana’s government debt reached 575.7 billion cedis ($47 billion) at the end of November 2022, while its public debt stood at an estimated 105% of its gross domestic product, a figure the country hopes to reduce to 55% by 2028.

Besides restructuring its local bonds, Ghana is also in talks to restructure its bilateral and external debt.

A spokesperson for the central bank declined to comment, while a spokesperson for the finance ministry did not immediately respond to requests for comment.

According to Ghanaian regulations, Section 30 of the Bank of Ghana Act permits the central bank to lend to the government. However, if repayment is unduly delayed, the Bank may transfer the debt to the public through the sale of treasury bills. Securitizing the loans would head off the central bank issuing treasury bills to recoup its money.

Ghana has been shut out of international markets after suspending interest payments on $13 billion of Eurobonds.

The country is facing fiscal and economic challenges, and the securitization of central bank loans could help it avoid further difficulties as it seeks to secure a much-needed bailout from the IMF.