Ghana: government could consider debt restructuring under common G20 framework – Redd Intelligence Report


The withdrawal of foreign funds and the restriction of Ghana’s access to the Eurobond market will add to the already heavy domestic borrowing needs in the fourth quarter of this year, according to the latest REDD Intelligence report on the country.

According to the international research firm, Ghana recorded a record drop in domestic debt holdings by non-residents in September, linked to a two-year domestic bond that matured on September 27 this year.

The next two-year GHS 2.0 billion ($ 0.3 billion) and $ 2.4 billion ($ 0.4 billion) bond maturities on November 8 and December 6, respectively, could see a further reduction in domestic debt holdings by non-residents, and weigh on Ghana’s foreign exchange reserves if funds are repatriated, ”the Ghana report says.

The report is titled “Ghana: Sale of Eurobonds Put 2022 Funding at Risk”.

According to REED, this would be in addition to the current cut in government funding, as the government is most likely excluded from funding in the international bond market for the time being due to the surge in yields in October.

The report says the government may consider seeking debt restructuring under the G20 common framework if the country fails to access the international capital market in the first half of 2022.

This is due to the rise in interest rates on its international bonds.

REDD said the country faced serious funding challenges ahead of the 2022 budget presentation in mid-November, as a massive sell-off of its Eurobonds cast doubt on its continued access to funding from international capital markets.

“If Ghana remains closed from the international financial market in the semester of 2022, then the government is more likely to consider seeking debt restructuring within the common framework of the G20. This is a bit earlier than our previous assumption that such demand could materialize in 2023-24. “

The G20 common framework developed with the Paris Club, beyond the Debt Service Suspension Initiative, offers debt treatments to low-income countries facing unsustainable debt.

He said the massive sell-off of Ghana Eurobonds in October 2021 had excluded the government from external trade finance for what could be an extended period.

That said, made the government even more dependent on domestic borrowing than expected in the fourth quarter of 2021 and through 2022.

“Heightened skepticism about the government’s ability to finance itself is expected to result in a continued repatriation of funds from non-residents of the domestic debt market in Q4 2021, which will exacerbate the funding crunch. The government could run a certain deficit. reduction measures in the 2022 budget, but investors are likely to demand more than optimistic income forecasts for Ghana’s Eurobond yields to close the gap with peers such as Kenya and Nigeria and fall to levels where new bond issuance would be feasible, ”the report said.

REDD Intelligence previously said the government would borrow heavily in the domestic market in the second half of the year, even if it retained access to external commercial finance.

The international research firm said the proceeds of US $ 3 billion from the sale of four-tranche Eurobonds in March 2021 enabled the government to reduce domestic borrowing in the second quarter of 2021.

REDD, however, said the country’s failure to re-enter the market for a Green, Social and Sustainable Bond (GSS) issuance by July 2021, as expected, saw the government increase its domestic borrowing in the form of new debt.

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