Ghana secured a staff-level agreement with the International Monetary Fund for a $3 billion bailout, a key step in the West African nation’s plans to restructure its unsustainable debt.
The accord, which still requires IMF board approval, enables the government to address its precarious public finances and support the cedi — the world’s worst-performing currency this year. Investor concerns about ballooning government debt — forecast to exceed the size of its economy this year — led to a selloff of government bonds this year that effectively locked the country out of international capital markets.
“The economic program aims to restore macroeconomic stability and debt sustainability while laying the foundation for stronger and more inclusive growth, said IMF Ghana Mission Chief Stéphane Roudet. The agreement is also subject to the receipt of the necessary financing assurances by Ghana’s partners and creditors, he said.
The cedi traded 1.2 percent stronger at 12.15 per dollar by 9:08 a.m. in the Ghanaian capital, Accra. The yield on Ghana’s benchmark 10-year eurobond dropped 32 basis points to 29.22 percent.
Ghana secured the IMF deal after asking local bondholders to accept losses on interest payments, while excluding a haircut on their principal. International bond holders may be asked to accept losses of as much as 30 percent on their principal and forgo some interest, Deputy Finance Minister John Kumah said last month before the government began talks with the IMF.
The country had 393.4 billion cedis ($28.1 billion) of debt at the end of June, and debt-service costs equivalent to 68 percent of tax revenue over the same period, according to budget data.
While the world’s second-biggest cocoa producer has no dollar debt maturing until July 2023, it faces 43.5 billion cedis of domestic local-currency bonds maturing through the end of June, data compiled by Bloomberg shows. On top of that, it has $663 million of coupon payments on dollar debt due by that date.