Government of Ghana has expressed optimism to secure a successful implementation of an external debt restructuring after successfully completing a Domestic Debt Exchange Programme (DDEP).
The completed DDEP, aimed at alleviating the country’s debt burden in a transparent and efficient manner, would help pave the way for a much-needed external debt restructuring programme.
As government jubilate, Fitch, an international rating agency, is skeptical about the deal’s efficiency, as it has described Ghana’s debt exchange programme as a distressed one. This is under its criteria, given this material reduction in terms vis-à-vis the original contractual terms, and given that the exchange is needed to avoid a traditional payment default. But, the Minister of Finance is confident that the DDEP will build momentum for the country’s external debt restructuring programme.
“The DDEP, part of the government’s broader fiscal policy to address the country’s current macroeconomic challenges, restore macroeconomic stability and put Ghana on a sustainable path to growth and development, has ended with 85% participation”, Ken Ofori-Atta said when addressing Parliament, last week.
“This success, will also build momentum for the external restructuring programme, which has also commenced.”
He said as part of this process, Ghana has officially asked its bilateral creditors for a Debt Treatment initiative under the G-20 Common framework.
Mr. Ofori-Atta also stated that negotiations had already begun with commercial creditors, with the establishment of a Creditor Committee to assess Ghana’s request for debt treatment under the Common Framework expected by the end of February.
He acknowledged the importance of the DDEP in helping the government meet its debt sustainability target of 55% of debt-to-GDP in present value terms by 2028.
“The Government recognises the continued importance of the DDEP in closing the financing gap and enabling the government to meet the debt sustainability target,” said Ofori-Atta.
With the successful completion of the DDEP, Ghana is hoping to make headway in restructuring its external debt and reducing its debt burden in the long term.
Apparently, according Fitch’s sovereign rating criteria, a ‘Rating Default’ rating is consequently assigned to the Long-Term Local Currency Issuer Default Rating.
Among the 67 eligible bonds that could be tendered, six are rated by Fitch. A ‘D’ rating has been assigned to these six bonds.
A GH¢4.2 billion principal payment was due on February 6, 2023.
But in the second amended and restated exchange memorandum released on Feb. 7, authorities announced that eligible holders holding this bond would not receive a final interest payment and a final principal payment, regardless of whether an eligible holder has tendered or not.
But in a press release issued by the Finance Ministry on February 14, 2023, the authorities announced that coupon payments and maturing principals would be honoured “in line with government fiscal commitments.”
This announcement, Fitch, said does not clarify yet when the payment will be made to holders who opted out of the domestic debt exchange. In particular, it does not clarify whether a principal payment will be made before the expiration of the grace period for this specific issue. This security is one of the six issues that have been downgraded to ‘D’.