Singapore-based global research firm, REDD Intelligence, has warned that the government’s reluctance to restructure external debt will affect its talks with the International Monetary Fund (IMF).

According to REDD Intelligence, the government’s apparent reluctance to restructure external debt and the high interest rates the country is paying on its domestic bonds, are major obstacles to the country’s long-term debt servicing.

“Government wants to avoid restructuring; they already reached out to the IMF and are trying to avoid a deeper crisis. Now they have to convince the IMF that they don’t need to restructure external debt”.
REDD Intelligence

The global research firm noted that Ghana’s current Eurobond levels of mid-40s are pricing in a three-year maturity reprofiling, a reduction of coupons to 5% and a 16% exit yield which focuses on emerging market.

However, any discussions on potential restructuring terms, it pointed out, are premature before the IMF debt assessment, adding, a lot of this assessment will come down to foreign exchange assumptions and debt-to-Gross Domestic Product ratio.

Domestic debt challenge

In a report dubbed ‘Ghana’s debt restructuring prospects become real as market mulls over scenarios’, REDD Intelligence indicated that some international investors also linked the bulk of Ghana’s debt problems to the domestic debt. As such, it warned the country to be very careful about the rate of domestic borrowing and urged the country to consider a careful restructuring of the domestic debt.

“Some have even voiced a daring thought that Ghana could solve its liquidity issues by only restructuring its domestic debt. However, that is a very unlikely prospect.

“This would be a very unpopular move in Ghana, with most domestic debt held by locals, it will be important to avoid a run on banks. In the past, the IMF has also been very cautious about including domestic debt in any debt restructuring exercise”.
REDD Intelligence

Ghana’s interest-to-revenue ratio is 47% — one of the highest among the sovereign issuers — with its domestic debt being majorly responsible for this.

Some market participants say the country could bring the ratio down to 30% by reducing the interest rates it pays on its domestic debt by five percentage points, from the current 20% plus to around 15%.

Despite the rising debt concerns, REDD Intelligence, noted that the country can still service its debt, unlike Sri Lanka but warned that the global market is getting tighter.

The Singapore-based global research firm advised the authorities to have an open constructive dialogue with investors who hold long-term stake in the country’s bonds.

“We are still in a phase when we can get something done. Ghana can still service debt, unlike Sri Lanka, and long-term Ghana investors should be open to a constructive dialogue if that means avoiding a full-blown crisis”.
REDD Intelligence

Ghana has been classified among 10 countries globally by CFR Sovereign Risk Tracker that are at risk of debt distress. The country scored a mark of 10, meaning it has a 50% or higher chance of defaulting in the next five years.

Ghana’s debt reached an alarming level of GH¢391 billion at the end of Q1, 2022, accounting for 78% of the country’s Gross Domestic Product (GDP). The nine other debt-burdened countries alongside Ghana captured by the CFR Sovereign Risk Tracker are Argentina, Lebanon, Pakistan, Russia, Sri Lanka, Tunisia, Ukraine, Venezuela and Egypt.