Associate Professor of finance at the Andrews University, Prof William Peprah, has expressed the need for the haircuts to bonds carried out by government to create some level of fiscal space for debt sustainability ratio.

According to him, the proposition by finance minister, Ken Ofori-Atta, where Eurobond holders may face nominal haircuts between 30% to 40%, is geared towards creating an enabling environment for Ghana’s economy to thrive.

“The proposition from the minister of finance to Eurobond holders, I’m sure the minister has looked at what he needs to create room for development in Ghana. All these discussions of haircuts, it should be able to create some fiscal space for the country to be able to meet debt sustainability ratios…”
Prof William Peprah

Prof Peprah revealed that currently, Ghana’s Eurobond is about $13.1 billion, and the average interest payment per annum was around $1.1 billion which excludes principal. This, he noted, was one of the major reasons why “our exchange rates reduced in value because we needed more dollars to be able to pay this dollar claims”.

“So, from what the finance minister has mentioned, if we are able to attain a 30%-40% haircut on the $13.1 billion, the Eurobond debt will reduce drastically to between $9.9 billion to $7 billion. This, in respect, is going to reduce the interest payment for the next 20 years between the ranges of $460 million a year to $390 million in a year.
“So, this means that we will be able to have enough room to plan, and it is going to reduce our debt burden, so that we will be able to achieve the GDP to debt ratio that we have all been envisaging to achieve.”
Prof William Peprah

Furthermore, Prof Peprah stated that the decision to give haircuts to Eurobond holders is “very significant”. Nonetheless, he revealed that for most of the Eurobond holders because their bond is a dollar-denominated investment, accepting a haircut is something that is really going to affect them.

“But it is better than they losing their money or the government refusing to pay. So, for almost 8 months that they have not received any coupon or principal payment, it is affecting their portfolios. So, such negotiations are very important and I’m sure they’ve also looked at the figures and they think that this will really help them.”
Prof William Peprah

Agreement in principle with Eurobond holders

Meanwhile, Finance Minister, Ken Ofori-Atta, has revealed that an agreement in principle with Eurobond holders is expected to be reached by the end of the year.

Commenting on whether there is bound to be challenges getting Eurobond holders to commit, Prof Peprah indicated that despite the discomfort this might cause, the discussion will be on whether the 30%-40% and nominal haircuts will be something that have to be looked at because it’s of significant impact for them to lose between $3billion to $5billion.

“So, that’s where the kind of negotiation will have to be. I’m not sure they’ll be too much worried about the 5% interest payment and also the duration of 20 years… Where the challenge will be for us as a country is to be able to convince them to accept the nominal haircut of 30% to 40%.”
Prof William Peprah

With respect to whether there’s a possibility that IMF could be extended beyond 2026 due to uncertainties around Ghana’s ability to get liquidity support from international capital market, Prof Peprah maintained that is likely. He underscored that the country needs a longer period of IMF programme.

“If you ask me, a 6 to 7 years programme would have helped us… If we really want to save ourselves from this insolvency situation, we find ourselves, we will need a longer period to be able to have this kind of discussion, and the IMF being around for a longer period will help us to be disciplined, especially in 2024, an election year – we may foresee some kind of volatility because of the pressures coming in…”
Prof William Peprah