From a trailblazer to global beggar: How Ghana borrowed $11 billion in four years

Following its exit from the Heavily Indebted Poor Countries (HIPC) initiative, Ghana has consistently sought external commercial loans from the Eurobond market, typically securing funds at interest rates ranging from 6% to 11%. Each fiscal year, the country requires between $1 billion to $3 billion to support its budget and address Balance of Payment (BoP) challenges.

Before the onset of the Covid-19 pandemic, the Ghanaian government had borrowed $5 billion from the Eurobond market between 2017 and 2019. Repayment was heavily reliant on revenue mobilization, a strategy that did not materialize as expected. Consequently, by the end of 2021, Ghana’s debt from the International Capital Market (ICM) had escalated to $11 billion.

2017: The grace period

In 2017, Ghana saw a change in leadership as President Akufo-Addo assumed office after winning the 2016 presidential elections. Under his administration, efforts were made to rejuvenate an economy heavily dependent on commodities. Shortly after his inauguration, Ken Ofori-Atta was appointed as the Finance Minister, and Dr. Ernest Addison was entrusted with leading Ghana’s central bank, the Bank of Ghana.

During this period, Ghana was halfway through a $918 million International Monetary Fund (IMF) programme initiated in 2015 under the previous administration led by John Dramani Mahama. The programme aimed to reduce inflation, public debt, and the deficit while fostering economic growth. Originally set to conclude in 2017, the IMF programme provided Balance of Payment (BoP) financing support, enabling the Ghanaian government to navigate the fiscal challenges of the year without resorting to borrowing from the Eurobond market.

2018: The starting point

Fueled by positive economic forecasts and boosted credit ratings resulting from investor confidence following the successful implementation of the IMF programme, the Akufo-Addo administration made its inaugural entry into the international capital market. By the close of 2018, the government had secured $2 billion through Eurobonds, issued in both 10-year and 30-year terms at $1 billion each in May. This marked Ghana’s sixth appearance in the International Capital Market since its debut in 2007.

Out of the total borrowed amount, $830.0 million was allocated to refinancing the 2022 Eurobond. Additionally, a portion of the proceeds, amounting to $750.0 million, was designated for budgetary support, while the remaining $420 million was deposited into the Sinking Fund.

2019: The triple zone

In 2019, Ghana made its seventh appearance in the capital market, marking a significant milestone by successfully issuing its first triple-tranche Eurobond offering on the International Capital Market (ICM). This issuance, conducted in March 2019, raised a total of $3.0 billion through 7-year, 12-year, and 31-year Eurobonds, with amounts of $750 million, $1.25 billion, and $1.0 billion respectively. The decision to launch this triple-tranche transaction was influenced by the positive sentiments expressed by the international investor community.

During 2019, Emerging Market (EM) yields were more attractive compared to those in developed markets, providing emerging economies like Ghana with a favourable opportunity to secure more loans. Consequently, by the end of the year, Ghana’s Eurobond debt had surged by more than half.

Out of the $3 billion borrowed, $283.0 million was utilized to buy back the 2023 Eurobond. Additionally, $1,872.7 million was allocated for budget support and critical infrastructure financing, while $843.9 million was earmarked for further liability management operations. The remaining $0.4 million was retained in the Eurobond account.

2020: Covid-19 and more loans

Just before the onset of the COVID-19 lockdown, Ghana received strong backing from the capital market, a sentiment reinforced by Moody’s, the international ratings agency, which expressed confidence in the country’s economy and provided a positive outlook. In February 2020, Ghana achieved a significant milestone by becoming the first African nation to issue a 41-year bond and a second tri-tranche on the International Capital Market (ICM).

Through this endeavour, Ghana successfully raised a total of $3.0 billion by issuing 6-year, 14-year, and 40-year Eurobonds in amounts of $1.25 billion, $1.0 billion, and $750.0 million respectively. The coupon rates for these tranches were set at 6.375%, 7.875%, and 8.750% for the short-dated, medium-dated, and long-dated segments respectively. Over three years (2018-2020), Ghana accumulated a total borrowing of $8 billion from the ICM, bringing its total Eurobond issuance from 2007 to 2020 to $11.75 billion.

In the fiscal year of 2020, the $3 billion proceeds were utilized for liability management operations, refinancing energy sector debt, and meeting budgetary requirements.

2021: From trailblazer to global beggar

In 2021, following the conclusion of the Covid-19 lockdown, Ghana reopened for international trade, yet faced the challenge of a substantial budget deficit. The country’s financial stability relied heavily on support from the International Capital Market (ICM). In a groundbreaking move, Ghana became the first African nation to issue a zero-coupon tranche Eurobond as part of its inaugural 4-tranche Eurobond issuance, totalling a face value of $3.03 billion and generating proceeds of $2.88 billion.

This innovative transaction not only made Ghana the first sub-Saharan African Sovereign to issue a US$ bond since the pandemic began, but also expanded its market access by introducing the inventive use of a zero-coupon tranche. Out of the $2.88 billion borrowed, $125.9 million (including charges) was allocated to buy back the 2023 Eurobond through a tender offer. Additionally, $1.5 billion was used for budget support, while $1.26 billion was directed towards further liability management operations.

By the close of 2021, Ghana had accumulated a total Eurobond borrowing of $11 billion over four years: $2 billion in 2018, $3 billion in 2019, $3 billion in 2020 during the pandemic, and a final $3 billion in 2021.

In 2022, Ghana faced economic challenges as emerging markets experienced soaring coupon rates for bonds, rendering them exorbitantly expensive. The escalation of sovereign bond interest rates was exacerbated by tensions between Russia and Ukraine. Consequently, only three countries—Nigeria, South Africa, and Angola—managed to issue Eurobonds in the first half of the year.

Other nations, including Kenya and Ghana, were priced out of the international capital markets due to unsustainable interest rates. Consequently, these countries turned to IMF-supported programmes. For Ghana, the burden of debt servicing obligations, limited to interest payments only, was projected to reach approximately $5 billion at both domestic and external levels in 2023.

The burden ahead

The government of Ghana is expected to pay outstanding Eurobond loans worth at least $7.85 billion in the next 10 years, without a debt restructuring.

According to data contained in the 2021 debt report released by the Finance Ministry, nine outstanding Eurobonds maturing in the next 10 years could cost the government at least $7.85bn, with about $3.7 billion (41.13%) of the total amount expected to be serviced in the next five years.

Less than two years after Ghana became a trailblazer as the first country in Africa to issue a zero-coupon tranche Eurobond, the country has announced its intention to suspend payments on most of its external debts (including Eurobonds) to pave the way for a $3 billion IMF bailout package.

External debt restructuring headache

At the external level, Ghana is grappling with severe economic challenges, primarily centered around its Balance of Payments (BoP) issues. These problems have led to a depletion of the country’s international reserves and resulted in crises such as exchange rate fluctuations.

The country had to undergo debt restructuring to qualify for a three-year Extended Credit Facility (ECF) programme aimed at providing BoP support. The IMF estimates that Ghana needs around $15 billion between 2023 and 2026 to address its BoP challenges.

The IMF has pledged $3 billion, the World Bank $1.55 billion, with the remaining $10.5 billion expected to come from external debt restructuring. Securing the $10.5 billion debt relief from external creditors poses a significant challenge for Ghana.

The country received the first tranche of $600 million after an assurance from external creditors. However, access to the subsequent tranches depends on passing the reviews, contingent on concluding financing assurances with foreign creditors.

Ghana’s debt arrangement with foreign creditors is anticipated to release approximately $2.5 billion in 2023 alone, helping bridge the BoP deficit.

In various debt restructuring negotiations worldwide, countries grappling with debt issues, such as Ghana, Zambia and Sri Lanka, find themselves caught in the crossfire of geopolitical tensions. A significant battleground emerges as China and the IMF struggle fiercely to resolve debt crises.

This complex situation underscores the challenging landscape of global debt restructuring and the significant impact it can have on countries like Ghana.

Certainly, the situation where China holds all of Ghana’s collateralised loans positions it as a pivotal player at the negotiation table for debt treatment.

This factor is crucial in determining the financing assurances Ghana needs to secure its second IMF bailout package, amounting to $600 million.

Ghana stands at a critical economic juncture, where the success of its 17th IMF programme hinges on substantial debt relief, expenditure cuts and significant revenue mobilisation.

Good news is nigh as Finance Minister Ken Ofori-Atta has disclosed that Ghana has secured assurances from both China and France regarding the Memorandum of Outstanding (MoU) for the restructuring of the country’s external bilateral debts.

“We have met the Central Bank Governor of China and we don’t perceive any opposition or reluctance in participating positively when it comes to the Memorandum of Understanding on restructuring of our external bilateral debts” the Finance Minister said.

Mr Ofori-Atta revealed that “The Chinese government within the past months is close to reaching a similar deal with Zambia, Sri Lanka and Suriname, so following that trend, we expect some similar cooperation from them when it comes to Ghana”.

Answering questions from Journalists on the sidelines of the Annual International Monetary Fund/ World Bank meetings in Marrakesh, Morocco the Finance Minister noted that Ghana’s engagement under the G20 Common Framework has shown that it is working for countries with debt challenges and there are indeed mechanisms to restructure their debts.

“We have made tremendous progress under this framework compared to other countries on a similar path,” the Minister said.

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