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Ghana declares national debt unsustainable

. Suspends payments on selected liabilities

The Ghanaian Government yesterday declared that public debt, both external and domestic, as unsustainable following a surge in inflation, a large exchange rate depreciation and stress on the financing of the budget.

Accordingly, the country has suspended the payments of selected external debts of the government, including Eurobonds, commercial term loans, and on most of its bilateral debt.

The declaration is the outcome of the Government’s Debt Sustainability Analysis (DSA), according to a statement, issued by the country’s Ministry of Finance.

The government explained that the suspension is “an interim emergency measure pending future agreements with all relevant creditors.”

The Government reassured of its readiness “to engage in discussions with all of its external creditors to make Ghana’s debt sustainable through a fair, transparent and comprehensive debt restructuring exercise in line with international best practices.”

The statement attributed Ghana’s economic crisis to global risk aversion, which triggered large capital outflows, leading to a loss of external market access and rising domestic borrowing costs.

The statement reads: “This year, 2022, the global economic shock induced by the Russian invasion of Ukraine has further adversely affected our economy just when it was beginning to recover from the pandemic.

“The combination of adverse external shocks has exposed Ghana to a surge in inflation, a large exchange rate depreciation and stress on the financing of the budget. These factors taken together have put the sustainability of our debt at risk.”

It added that despite launching an invitation to exchange the domestic debt on December 5th, to kick-start “a more comprehensive agenda to restore public debt sustainability,” it was however not “enough to close the large financing gaps that Ghana faces over the coming years.”  

The Government stands ready to engage in discussions with all of its external creditors to make Ghana’s debt sustainable through a fair, transparent and comprehensive debt restructuring exercise in line with international best practices.

The Ministry noted that Ghana had the formally requested IMF assistance in July 2022.

“A Staff-Level Agreement (SLA) has subsequently been achieved and announced on 13th December on a financing program aimed at restoring macroeconomic stability and debt sustainability, and preserving financial stability while protecting the most vulnerable,” it added.

The statement reads further: “This SLA milestone was achieved in record time. It is with this same spirit that we, therefore, expect creditors to also respond in an expedited manner, to ensure that the IMF-supported programme is adopted by the IMF Board as soon as possible in early 2023.

“In the interim, additional emergency measures are necessary to prevent a further deterioration in the economic, financial, and social situation in Ghana. As it stands, our financial resources, including the Bank of Ghana’s international reserves, are limited and need to be preserved at this critical juncture.

“That is why we are announcing today a suspension of all debt service payments under certain categories of our external debt, pending an orderly restructuring of the affected obligations.”

This suspension will not include the payments of our multilateral debt, new debts (whether multilateral or otherwise) contracted after 19th December 2022 or debts related to certain short term trade facilities,” it added.

Meanwhile, the country said it is also evaluating certain specific debts related to projects with the highest socio-economic impact for Ghana which may have to be excluded.

The Ministry of Finance also said it will hold an investor presentation at a date to be announced at a later stage.

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