Ghana’s Debt Crisis Over; Exits Debt Default
Ghana is on the verge of exiting its debt default, after successfully restructuring $13 billion in US dollar bonds. This development marks a significant step toward Ghana’s re-entry into global capital markets, nearly two years after a severe economic crisis compelled it to suspend debt repayments. The majority of bondholders agreed to exchange their bonds for new debt worth $4.7 billion less, reducing Ghana’s debt burden by over $4 billion in the next two years, according to a government statement released on Thursday.
The restructuring comes at a crucial time, ahead of Ghana’s general elections in December, where the legacy of the country’s financial crisis will weigh heavily on the outcome. President Nana Akufo-Addo, who will step down after two terms, expressed confidence in the nation’s recovery, declaring, “Today, our economy has turned a corner. We’ve accomplished what many deemed impossible — we have decisively resolved Ghana’s debt overhang.”
The economic turmoil that led to this restructuring was fueled by rampant inflation and the collapse of the Ghanaian cedi against the US dollar, exacerbated by the global impacts of Russia’s invasion of Ukraine in 2022. Ghana, once one of Africa’s fastest-growing economies, was forced to seek a $3 billion bailout from the International Monetary Fund (IMF). As part of the IMF program, the country had to engage in complex negotiations with its major creditors to reduce its debt. The crisis allowed neighboring Ivory Coast to surpass Ghana as West Africa’s second-largest economy.
Despite the restructuring and the expected economic improvements, Ghanaians are still grappling with high inflation, which stood at over 21 percent last month. The IMF projects that the country’s public debt will fall below 80 percent of GDP in 2024, a significant decrease from nearly 100 percent in 2022. This financial recovery, however, is expected to be a major issue in the December elections, where Vice President Mahamudu Bawumia will face former President John Mahama.
Ghana’s bond restructuring is the latest in a series of sovereign debt negotiations across the globe, following the wave of economic instability caused by the Covid-19 pandemic. Ukraine, for instance, completed a restructuring of $20 billion in wartime debt in September after four months of negotiations. Zambia, which also utilized the G20-endorsed “common framework” for low-income countries, took four years to reach terms with creditors. Similarly, Sri Lanka secured a preliminary deal in September to restructure $13 billion in bonds, more than two years after its default.
Ethiopia is the next country in line for debt restructuring under the G20’s common framework, but the process has already become contentious. A bondholder committee criticized the Ethiopian government’s proposed 18 percent reduction on a $1 billion bond that defaulted last year, calling it “wholly inconsistent” with the country’s economic fundamentals. The committee also raised concerns over the lack of transparency in Ethiopia’s dealings with its official creditors.