Government Announces 50% Debt Write-Off on GH¢77 Billion Owed to Bank of Ghana

In a significant move to restructure its domestic debt and qualify for the next tranche of the $3 billion International Monetary Fund (IMF) rescue loan, Ghana’s government has taken a bold step to write off half of its massive 77.6 billion cedis ($7 billion) debt owed to the central bank.

The remaining portion of the debt has been replaced with a lower-yielding, 15-year bond. According to three sources familiar with the transaction, this latest action is part of the country’s strategy to engage with external creditors.

Earlier this year, Ghana embarked on the first phase of domestic debt restructuring in February.

During this phase, 85% of eligible holders, including the central bank, exchanged their local currency bonds for new longer-dated bonds with reduced interest rates.

However, the central bank, with 17 billion cedis in bonds, had initially sought to be excluded from the restructuring but eventually came under the purview of the debt overhaul.

The motivation behind the debt restructuring stems not only from the country’s pursuit of IMF requirements but also from its ambition to ease its economic crisis, which has been exacerbated by defaults on most external debts in December.

As part of this broader effort, Ghana aims to lessen overseas debt payments by a staggering $10.5 billion over the next three years.

A senior government official explained that the debt written off by the central bank consisted of non-tradable items, including overdrafts to the government, debts to the cocoa marketing board, a COVID-19 bond, and other legacy debts spanning 15 years.

These debts had been in line with the central bank’s main interest rate, which stands at 30%. The government’s exchange of the principal amount of the debt at a 0.5 ratio with a 2038 bond issued in February offers a clear indication of the terms of the transaction.

While this debt restructuring represents a crucial step for Ghana’s economic recovery, it has not come without consequences. The central bank has incurred a significant loss, amounting to around 50 billion cedis, according to a source within the bank.

This loss is projected to linger on the books for the next five years, leaving the central bank grappling with the implications.

The Ministry of Finance sought legal advice from the attorney general and justice minister, as evident in a letter seen by Reuters, which outlines the specific terms of the transaction.

The letter states that the issued bond carries an interest rate of 10%, with 5% paid in kind in 2023 and 2024.

As the details of this critical debt restructuring continue to unfold, the finance ministry and the central bank have remained tight-lipped, refraining from providing official comments on the matter.

Ghana’s government faces a challenging road ahead as it strives to implement further debt restructuring and negotiate with external creditors.

The outcome of these efforts will play a crucial role in determining the country’s economic trajectory and its ability to address the current economic crisis effectively.

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