Ghana announced it will suspend payments on most of its debt to bondholders, other commercial lenders, and foreign governments, officially putting it in default. The announcement comes a week after a staff-level meeting with the IMF and a ratings downgrade. Ghana’s economy is spiraling, with 70%-100% of government revenue going to debt servicing and domestic inflation hitting 50%, triggering protests.
Out of its $28.4 billion external debt, $1.9 billion is owed to China, only about 6.7%. In contrast, Eurobond debt makes up 46.1% ($13.1 billion.) Bondholders said the relatively small share of Chinese debt will likely smooth the debt restructuring process, in contrast to countries like Zambia.
Ghana reached a preliminary $3 billion bailout deal with the IMF last week, which is dependent on buy-in from its external creditors.
Outlining Ghana’s Debt Crisis:
- WHICH DEBTS ARE AFFECTED?: The default affects Ghana’s Eurobonds, commercial loans, and $3.2 billion in bilateral loans with foreign governments. Not affected are $5 billion in short-term loans and its debt to multilateral institutions, including $3.4 billion in IMF credit and $4.7 owed to the World Bank. 42% of Ghana’s total debt is domestic, and that’s being handled separately, with the government having already announced a domestic debt exchange program.
- HOW TO COUNT CHINESE DEBT?: The debt restructuring process is being complicated by a dispute between Accra and the International Monetary Fund about whether a $2 billion bauxite-for-infrastructure deal with Sinohydro should be counted as part of Ghana’s external debt. While the IMF wants it included, the government sees it as a barter deal and therefore off limits. The outcome will have implications for other countries with Chinese resource-backed loans.
SUGGESTED READING:
- Reuters: Ghana to Default on Most External Debt as Economic Crisis Worsens by Christian Akorlie and Cooper Inveen
- Reuters: Explainer: Who Holds Ghana’s Debt and What Restructuring is Planned? by Rachel Savage and Marc Jones
