The Government of Ghana may consider applying for a debt restructuring under the G20 Common Framework, if the country fails to access the international capital market in the first-half of 2022.

This is as a result of rising interest rate on its international bonds.

According to a report by international research firm, REDD Intelligence, dubbed “Ghana: Eurobond sell-off puts 2022 financing at risk”, the country faces severe financing challenges ahead of the presentation of the 2022 budget in mid-November, as a sharp sell-off in its Eurobonds brings doubts over its continued access to international capital markets financing.  

“If Ghana remains closed out of the international financial market in half-year 2022 then there is an increased likelihood the government may consider applying for a debt restructuring under the G20 Common Framework. This is somewhat earlier than our previous assumption that such an application could materialize in 2023-24.” The G20 Common Framework developed together with the Paris Club, beyond the Debt Service Suspension Initiative, provides debt treatments for Low Income Countries facing unstainable debt.

Furthermore, the report said “the sharp sell-off in Ghana’s Eurobonds during October 2021 has locked the government out of external commercial financing for what could be an extended period. This makes the government even more reliant on domestic borrowing than expected in the fourth quarter of 2021 and going into 2022.”

Additionally, “increased skepticism over the government’s ability to finance itself is likely to result in a continued repatriation of non-resident funds from the domestic debt market in 4^th quarter of 2021, which will add to the financing squeeze. The government could present some deficit-cutting measures in the 2022, budget but investors are likely to demand more than optimistic revenue forecasts for Ghana’s Eurobond yields to close the gap with peers such as Kenya and Nigeria and fall to levels where new bond issuance would be feasible”, the report pointed out.

REDD Intelligence had earlier stated that the government would borrow heavily on the domestic market during the second half of the year, even if it had retained access to commercial external financing.

 This it stated “is because the government has as expected, made limited progress on closing the large fiscal deficit, which reached 15.2% of GDP (on a cash basis) in 2020, according to the International Monetary Fund. The half-year fiscal data showed a continued underperformance in government revenue with most of the expenditure restraint being in domestic interest payments. These interest payments REDD Intelligence said are likely to have been deferred and, if so, will need to be made at some point.”

The high borrowing has crowded out businesses from access to capital from the banks.

In recent times, interest cost of the country’s international bonds has shot up because of the high debt on the book of the government.  

$3bn Eurobond helped government to reduce its borrowing on domestic market

The US$3 billion proceeds raised from the four-tranche Eurobond sale in March 2021 allowed the government to reduce its borrowing on the domestic market during the second quarter of 2021. However, the failure to return to the market for a green, social and sustainable (GSS) bond issuance by July 2021 as planned saw the government ramp up its domestic borrowing in new debt.