Global research firm, REDD Intelligence, has dismissed fears that Ghana will default in repayment of its loans, saying, the country can still service its debt, unlike Sri Lanka.

However, it is warning that the global market is getting tighter.

In a report dubbed “Ghana's debt restructuring prospects become real as market mulls over scenarios”, it advised the authorities to have an open constructive dialogue with investors who hold long-term interest in the country’s bonds.

“We are still in a phase when we can get something done. Ghana can still service debt, unlike Sri Lanka, and long-term Ghana investors should be open to a constructive dialogue if that means avoiding a full-blown crisis,” commented a Fund Manager with REDD Intelligence.

Government’s reluctance to restructure external debt may affect talks with IMF

Furthermore, the Singapore-based, REDD Intelligence, said the government’s reluctance to restructure external debt will affect its talks with the International Monetary Fund (IMF).

Two important considerations raised in recent market discussions on Ghana, it said, are the government’s apparent reluctance to restructure external debt and the high-interest rates the country is paying on its domestic bonds, according to both strategists and the fund manager.

“Government wants to avoid restructuring; they already reached out to the IMF and are trying to avoid a deeper crisis. Now they have to convince the IMF that they don’t need to restructure external debt,” commented the second strategist”, it explained.

Ghana’s current Eurobond levels of mid-40s are pricing in a three-year maturity reprofiling, a reduction of coupons to 5% and a 16% exit yield, according to the global research firm which focuses on emerging market.

However, any discussions on potential restructuring terms, it pointed out, are premature before the IMF debt assessment, adding, a lot of this assessment will come down to foreign exchange assumptions and debt-to-Gross Domestic Product ratio.

Domestic debt conundrum

Some international investors also linked the bulk of Ghana’s debt problems to the domestic debt.

REDD Intelligence cautioned the country to be very careful about the rate of domestic borrowing.

It also advised a consideration of restructuring of the domestic debt with care.

“Some have even voiced a daring thought that Ghana could solve its liquidity issues by only restructuring its domestic debt, said the strategist; however, that is a very unlikely prospect, all three agreed”.

“This would be a very unpopular move in Ghana, with most domestic debt held by locals, said the fund manager, adding it will be important to avoid a run on banks. In the past, the IMF has also been very cautious about including domestic debt in any debt restructuring exercise”, he said.

Ghana’s interest-to-revenue ratio is 47% — one of the highest among the sovereign issuers — with its domestic debt being majorly responsible for this.

Some market participants say the country could bring the ratio down to 30% by reducing the interest rates it pays on its domestic debt by five percentage points, from the current 20% plus to around 15%.