In 2024, the Government of Ghana is projected to need between US$600 million and US$800 million to service its external debt, according to estimates from IC Africa Research.

This significant financial requirement includes an estimated US$477 million earmarked for Eurobond debt service alone. The resumption of debt service on the restructured Eurobonds is anticipated to commence in July 2024, marking a crucial phase in Ghana’s financial management strategy.

IC Africa Research’s analysis highlights that the estimated cash flow for the restructured Eurobonds is expected to facilitate the resumption of debt service from mid-2024.

This resumption is a pivotal step, considering that multilateral debt service, which was excluded from the debt restructuring perimeter, continues unabated. Therefore, the authorities anticipate requiring between US$600 million and US$800 million for overall external debt service in the coming year.

It is important to note that these figures do not account for the US$1.6 billion legacy arrears owed to Independent Power Producers (IPPs), of which only US$400 million has been settled. Additionally, other commercial creditors are also not included in this estimate, further underscoring the financial challenges facing the government.

Future Debt Service Outlook

Extending the financial outlook, IC Africa Research projects a more intense debt service obligation from 2026 to 2030. During this period, debt service on the Eurobonds alone is expected to peak at US$1.4 billion before reducing to US$1.1 billion. This forecast highlights the necessity for strategic financial planning to manage future obligations effectively.

As of April 2024, Ghana’s foreign exchange reserves, excluding oil funds and encumbered assets, stood at US$4.3 billion, equivalent to approximately two months of imports. This reserve level is a critical component of the government’s strategy to accumulate reserves in anticipation of the resumption of external debt service.

However, IC Africa Research emphasizes that this reserve accumulation is primarily geared towards meeting debt obligations rather than providing substantial support for the foreign exchange market.

Consequently, the outlook for the Ghanaian cedi remains less optimistic, with limited sources of substantial foreign exchange inflows anticipated to bolster the market. This cautious perspective reflects the ongoing economic challenges and the need for prudent fiscal management.

Secondary Market Pricing and Investor Sentiment

The restructuring of Ghana’s Eurobonds has also impacted secondary market pricing. IC Africa Research notes that, despite a significant move in restructuring, there is limited upside potential for secondary market pricing.

Following an early May 2024 update on the initial proposal, Ghanaian Eurobonds posted an average price gain of 3.8% by mid-June 2024. However, deeper losses for investors are expected due to effective haircuts on principal and past due interest (PDI) and a reduction in the stepped-up coupon rate by 50 basis points, extending the lower coupon of 5.0% for an additional year.

Given these adjustments, the current average market cash price stands at US$53.4 per US$100 face value. IC Africa Research now forecasts limited upside potential, estimating an increase of between 5.0% and 7.0%. This cautious outlook reflects the stringent terms imposed by the new restructuring agreement and the broader economic uncertainties.

Ghana’s projected external debt service requirements for 2024 underscore the country’s ongoing financial challenges and the need for strategic fiscal management.

With a significant portion of the debt service earmarked for Eurobonds and multilateral debts, the government faces a critical task in managing its reserves and ensuring financial stability. The future debt service obligations from 2026 to 2030 further emphasize the importance of long-term financial planning.

Moreover, the cautious outlook for the Ghanaian cedi and limited upside potential for secondary market pricing highlight the complex economic environment the country finds itself.