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Restructuring external debt: 2 Economists predict growth

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The agreement to restructure the country’s $5.4 billion debts owed to external creditors will help to free up some resources for the government to engage in economic activities that will propel growth, two economists have said.

They said apart from unlocking the release of the second tranche of $600 million from the International Monetary Fund (IMF) and funding from other development partners, it would also help shore up the country’s forex reserves, which would in turn help cushion the local currency.

The two economists are the Director of the Institute of Statistical, Social and Economic Research, Professor Peter Quartey, and the Head of Research at the Institute of Fiscal Studies, Dr Said Boakye.


The Ministry of Finance on January 12, announced that the country had reached an agreement with its Official Creditors under the G20 Common Framework, on a comprehensive Debt Treatment Beyond the Debt Service Suspension Initiative (DSSI). 

This follows the successful completion of the Domestic Debt Exchange Programme (DDEP) in 2023, which saw the country swap domestic bonds worth GH¢82 billion for 12 new bonds at reduced coupon rates and longer tenors.

It also comes eight months after the Executive Board of the IMF approved the country’s programme which aims to restore debt sustainability and three months after the country had reached a staff level agreement on the first review of the programme.

The ministry in the release said the development constituted a significant positive step towards restoring Ghana’s long-term debt sustainability.

It said the agreement also paved the way for the IMF Executive Board to approve the first review of the Fund-supported programme, allowing for the next tranche of IMF financing of US$600 million to be disbursed. 

The IMF Board Approval should also trigger the World Bank Board’s consideration of $300 million Development Policy Operation (DPO) financing. 

In addition, the World Bank is expected to support the Ghana Financial Stability Fund with $250 million to help address the impact of the DDEP on the financial sector. 
“The government is confident that this debt treatment, which entails significant flow relief during the programme period, will allow for the allocation of additional financial resources towards critical public investments, particularly in health care, education and infrastructure development,” the Ministry of Finance said in a statement last Saturday.

The ministry added that the terms of the agreed debt treatment were expected to be formalised in a Memorandum of Understanding between Ghana and Official Creditors, which would then be implemented through bilateral agreements with each member of the Official Creditor Committee. 

“The government of Ghana looks forward to further engaging with the Official Creditors to ensure prompt implementation of the agreed terms,” the release noted.
The Official Bilateral Creditor Committee (OCC) formed under the Paris Club is co-chaired by France and China.

IMF response 

The Managing Director of the IMF, Kristalina Georgieva, in a statement also welcomed the announcement, stating that the agreement with the OCC was consistent with the objectives of the IMF-supported programme.

The programme aims to restore macroeconomic stability and debt sustainability, build resilience, and lay the foundations for stronger and more inclusive growth.

“I want to thank the Official Creditor Committee, especially the co-chairs, China and France, for all their work to reach this agreement. This is another substantial milestone for the G20 Common Framework under which G20 creditors joined forces to agree on debt relief for Ghana.

“This agreement clears the path for IMF Executive Board consideration of the first review of Ghana’s three-year Extended Credit Facility arrangement in the next few days. I look forward to continuing our fruitful collaboration with Ghana,” Ms Georgieva said.

Economic recovery

In an interview with the Daily Graphic, Prof. Quartey said it was necessary that the agreement with the OCC was not debt forgiveness but just the rescheduling of debt payments and some cuts in interest payments.

He said the disbursements from the IMF and the World Bank as a result of the agreement would, however, be key for Ghana’s economic recovery and ambitious reform agenda.

“This will free up some resources for government to engage in other equally important economic activities,” he added.

Prof. Quartey said it would also shore up forex reserves to help in the management of the exchange rate depreciation. 

“A lot of macroeconomic indicators like inflation and interest rates are tied to the exchange rate so once we are able to stabilise the currency, we will see some stability on the economy,” he explained.

He said the inflows would also enable the government to pay some of its outstanding local debts to contractors and meet other budgeted expenditures.

Learning from mistakes 

Prof. Quartey said the country must, however, learn from its mistakes and not go about business as usual.

“We must ensure that these resources are used judiciously. These are not free money but money that has to be repaid, so we have to invest the resources to stimulate production and ensure that we can leverage that to raise more resources.

“We must also ensure that when they are due for repayment, we will have enough resources to service those debts and not go back again to ask for rescheduling and cancellation,” he stated.

“So I see prospects ahead but we need to move with caution and not repeat the mistakes of the past,” he added.

Budget implementation 

Also speaking in an interview with the Daily Graphic, Dr Boakye said the release of the IMF funds and others from development partners would help in the successful implementation of the budget.

He also emphasised that it would help in managing exchange rate risks, noting that exchange rate stability in the first quarter of every year was a problem.

“The coming of these funds will give some confidence to the market and shore up the local currency.

“The government used to go to the Eurobond market to borrow to shore up the cedi but with the market currently closed to us, the release of such funds from the IMF and the World Bank is critical and will make a huge impact,” he said