Govt secures pact to suspend bilateral loan payment until 2026

The government has secured a memorandum of understanding (MoU) with the Official Bilateral Creditor Committee (OCC) co-chaired by France and China after 16 months of negotiations.

The MoU, which follows an interim agreement in January, represents the final step in the country’s debt restructuring talks with the OCC, which the country owes $5.1 billion. Each official creditor is now expected to follow its internal procedures to sign the MoU.

Once signed, the agreed terms will be implemented through bilateral agreements with each OCC member. The agreement will now pave the way for the Executive Board of the International Monetary Fund (IMF) to approve the second review of the country’s three-year programme with the fund aimed at restoring macroeconomic stability and debt sustainability.

The approval of the second review expected later this month will unlock the third tranche of $360 million from the IMF, bringing the total disbursement under the programme to $1.56 billion.

The $360 million will help shore up the country’s international reserves and help stabilise the Ghana Cedi, which has lost some ground against the major trading currencies since the beginning of the year.

The IMF Board’s approval is also expected to trigger more financial assistance from development partners, particularly the World Bank.

Background

Following the formation of the OCC in May 2023, the IMF Executive Board approved Ghana’s three-year programme with the fund. The IMF also approved the first review of Ghana’s programme in January after the government reached an interim agreement with the OCC.

Although the government reached a staff level agreement with IMF’s mission in April for the second review, the Executive Board’s approval was hinged on the country’s ability to formalise its agreement with the OCC through an MoU.

Press conference

Addressing a press conference in Accra yesterday, the Minister of Finance, Dr Mohammed Amin Adam, said the agreement with the OCC was a demonstration of the confidence of the international community in the economy.

“This means that Ghana is doing well under the fund programme, the policies are bearing fruits and we continuously show our commitment to programme objectives in order to restore macroeconomic stability and debt sustainability,” he said.

The Finance Minister said the MoU would provide a significant debt repayment relief for the country. “What this means is that debt service that was due between 2023 and 2026 have been rescheduled and we will not have to service them now.

“The money we would have used to service the debt will now be available to the government to spend on critical sectors of the economy,” the minister stated.

Cabinet

Dr Amin Adam said the Ministry of Finance would, however, present to Cabinet for consideration options on the best investments that the country could put the money to in order to lower the fiscal burden when the time for repayment commenced in 2026.

As part of the proposals, he said, the ministry would recommend the setting aside of part of the money to build buffers for repayment. “We are proposing the establishment of a buffer that could help us repay these facilities when repayment resumes after 2026 in a manner that will reduce the fiscal burden on the budget at the time,” Dr Amin Adam said.

“The relief we got during HIPC, all the money was spent; this time we are making a proposal to Cabinet to consider not spending all the money that we would have used to service our debt,” he explained.

Dr Amin Adam said the signing of the MoU would also mean that most of the projects that were stalled as a result of the debt suspension would now resume, with disbursements expected to commence soon.

Financial terms

A release by the Ministry of Finance yesterday said the financial terms of the interim agreement reached in January remained unchanged, adding that it provided significant debt service relief during the fund-supported programme period.

The release, which was signed by the Minister of Finance, said that would allow financial resources to be directed towards critical areas such as infrastructure, health care and education.

“We call upon our official creditors to fast-track their internal processes towards the signing of the bilateral agreements,” the release stated. Dr Amin Adam expressed his gratitude to all members of the OCC, particularly the committee’s Co-chairs, China and France, for their unwavering commitment to assisting our country in resolving its debt issues.

He said the agreement marked an extraordinary milestone in Ghana’s debt restructuring journey and would further strengthen the government’s ambitious reform agenda with the strong support of development partners.

Private creditors

The signing of the MoU is also expected to give a shot in the arm to the country’s discussions with Eurobond holders who the country owes $13 billion. The country recently opened fresh talks with the Eurobond holders after the interim agreement reached was rejected by the IMF because it fell short of its debt sustainability target for the country.

“The agreement will also bolster the current and ongoing discussions with private creditors, with whom Ghana remains committed to finding a comparable agreement as early as possible,” the release added.

The Ministry of Finance said the country would continue to engage in good faith with all commercial external creditors, striving to finalise restructuring agreements that respect Ghana’s need for debt relief and the comparability of treatment principle,” the release from the Ministry of Finance stated.

IMF comments

The Managing Director of the IMF, Kristalina Georgieva, in a tweet, congratulated Ghana on reaching an agreement with the OCC. She said the agreement would support the IMF Executive Board’s consideration of the programme’s second review later this month.