Ghana's Political Turmoil Complicates Debt Negotiations

Ghana is taking its third big step to extricate itself from debt distress, but bond investors face a new complication: political uncertainty. This could make it difficult for the country to continue making progress on its debt reduction goals.
The government of West Africa has reiterated its request for relief from bilateral lenders, including the Paris Club and China, under the Group-of-20 Common Framework. This follows an offer to local-currency bondholders for a debt swap with reduced coupon payments, and a unilateral move to suspend payments on external debt.
The process of negotiating a new mining agreement in Ghana is coming at a time when the country is facing political change. The ruling New Patriotic Party will pick its next president later this year, and two ministers have quit in the past week, presumably to join the leadership race. While this could bring new faces and a new approach to the negotiating table, general elections due in 2024 mean there is no guarantee the next government will abide by anything that is agreed.
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Mark Bohlund, a senior credit research analyst at REDD Intelligence, said that external bondholders would be better off seeking to close a restructuring deal with the current government, but there is likely to be enough opposition among creditors to frustrate such a process. Bohlund explained that many creditors are wary that whatever is agreed with the current government is unlikely to be upheld if there is a shift in political power at the next elections.
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Investors are still reeling from Ghana's last surprise. One week before Christmas, the government suspended interest payments on $13 billion of eurobonds, commercial loans, and most bilateral obligations pending an agreement with creditors. That stunned investors who had hoped for a more consensual procedure.
Ghana's external creditors have formed a group that includes Abrdn and BlackRock. This group will work together to help Ghana repay its debts and improve its financial situation.
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The country’s currency has resumed its selloff, with the cedi tumbling 20% since the announcement was made on December 19. This has complicated the country’s path back into international capital markets, which it lost access to in December. However, the priority may be to unlock $3 billion in assistance from the International Monetary Fund, for which it won an in-principle agreement.
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Bohlund said that the government's decision to suspend most external debt servicing without a consent solicitation process indicates that they have given up on trying to regain Eurobond market access before the 2024 elections. Instead, they are focusing on getting funds from the IMF as quickly as possible.
S&P's decision to downgrade Ghana's external debt to "selective default" has led to concerns about the country's ability to repay its debts. Finance Minister Ken Ofori-Atta has said that authorities will start restructuring talks with external bondholders in the second half of the week of Dec. 12, but no offer has been publicly made. Ghana is being advised by Lazard.
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Local bond investors pushed back after the government published a bond swap offer. Negotiations led to an agreement to exempt pension funds from the swap, and the government eventually published a revised debt swap offer with new exit bonds on Christmas Day.
The Ghana Individual Bondholders Forum has accused the government of disregarding the contractual rights of individual bondholders and failing to consult with them in a reasonable manner. According to the Forum, this has led to a situation where bondholders are being presented with "painfully stark, impoverishing and unsustainable choices."
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The man who is overseeing Ghana's journey back to debt sustainability is facing an uncertain future himself. In December, Ofori-Atta survived a censure motion by the parliamentary minority to be removed over the crisis, and calls for him to step down have resumed early this year.
Ghana has 43.5 billion cedis ($3.1 billion) in domestically-sold local-currency bonds maturing through the end of June, according to data compiled by Bloomberg. All told, bondholders are waiting for restructuring proposals on about $8 billion of local bonds and $13 billion of dollar notes. On top of that, it has $663 million coupon payments on dollar debt.
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Bohlund said that access to credit has now been cut off and will take a long time to re-establish, necessitating a radical change in how Ghanaian politics are run. He said it is an open question if this can be done within the two main parties through a promotion of younger officials or if we will see new parties taking over and replacing them.