Ghana signals 2nd phase of domestic debt restructuring

Ghana's finance Minister, Ken Ofori-Atta, has disclosed plans for a second phase of domestic debt restructuring valued at about 123 billion cedis. This development comes as the International Monetary Fund predicts an increase in Ghana's debt to GDP ratio to 98.7 per cent by the end of the year. Kweku Arkoh-Koomson, an economic analyst at Databank, joined CNBC Africa to delve into the possible implications of these decisions. The initial debt restructuring program exempted pension funds, but now there are indications that they may be brought into the fold under different terms in the upcoming phase. The second phase of debt restructuring is expected to involve various stakeholders, including pension funds, the Bank of Ghana, marketable debts, US dollar-denominated local bonds, and local currency loans. This comprehensive approach is anticipated to have a significant impact not only on the banking sector in Ghana but also on affiliated countries like Nigeria, which saw some of its banks affected during the initial phase. The debt servicing challenge remains a key concern, especially due to the high cost of servicing local currency government debt with its short-term nature. The extension of the debt servicing window to approximately 8.3 years provides some relief and flexibility for the government to manage its obligations. By pushing out the maturity dates, the debt restructuring has considerably reduced the debt service burden, particularly around treasury bills. This strategy aims to ensure smoother debt servicing for the government. However, beyond the operational challenges of debt restructuring lies the risk perception associated with accessing foreign capital in the future. The negotiation with commercial investors and the engagement with the IMF are crucial steps to mitigate this risk and ensure financial stability and credibility in policy-making. The IMF's projections for Ghana's economy, including the debt-to-GDP ratio forecast of 98.7 percent, reflect the ongoing uncertainties. While the debt restructuring did not decrease the face value of debts significantly, further measures such as debt forgiveness from bilateral and commercial creditors could alleviate the debt burden. The predictions regarding inflation and policy responses also underscore the need for a vigilant approach. The recent policy measures to increase the policy rate and required reserve ratio are aimed at reinforcing the disinflation process, which saw a substantial deceleration in inflation rates. The upcoming monetary policy meeting in May will likely evaluate the transmission of these measures before deciding on further adjustments. In the midst of these economic challenges, Ghana's policymakers are tasked with striking a delicate balance between managing debts, ensuring financial stability, and promoting sustainable economic growth.