Ghana reaches $13b debt agreement

Ghana and its Eurobond investors have agreed in principle to restructure about $13 billion in dollar bonds, marking significant progress in the country’s debt overhaul. The financial details, including a nominal haircut and changes to maturities, will be announced next week.

The haircut rate will increase to 37 per cent from 33 per cent, though some non-financial issues remain unresolved.

As part of a $3 billion IMF bailout, Ghana is addressing nearly all its debt. Last year, it completed a domestic debt exchange and recently agreed with bilateral lenders to revamp $5.1 billion. This new deal follows the IMF’s rejection of an initial agreement in April for not meeting debt sustainability requirements. Moreover, the agreement was rejected because it didn’t sufficiently reduce the debt ratio to 55 per cent of GDP by 2028. The current talks were spurred by better-than-expected economic growth in 2023, with no additional incentives included.

These negotiations are among the final steps in Ghana’s debt restructuring, which began with the suspension of external debt payments in December 2022.

A spokeswoman for the finance ministry did not respond to requests for comment.

A haircut is the lower-than-market value placed on an asset when it is being used as collateral for a loan. The size of the haircut is largely based on the risk of the underlying asset.

Attributes: Bloomberg, Investopedia