Ghana’s government has written off half of the 77.6 billion cedis ($7 billion) it owed to the central bank and replaced the remainder with a lower yielding, 15-year bond, three sources with direct knowledge of the transaction told Reuters.
The latest move is part of the West African nation’s push to restructure its domestic debt – a requirement to qualify for the next tranche of a $3 billion International Monetary Fund (IMF) rescue loan. Ghana now wants to focus on negotiations with external creditors.
The gold, oil and cocoa producer concluded the first phase of domestic debt restructuring in February, when 85% of eligible holders exchanged their local currency bonds for new longer-dated bonds, with lower interest rates. This included the central bank which exchanged 17 billion cedis.
The government is now restructuring 123 billion Ghana cedis of domestic debt – including domestic U.S. dollar bonds, cocoa bills, pension funds as well as debt owed to independent power producers and the central bank.
“The [central bank] had wanted to be excluded and they pushed really hard but there was no agreement,” a senior government official said.
“The IMF also made it clear that we cannot achieve our target on debt restructuring if we do not include the [central bank debt].”
The official said that the central bank debt that had been written off was non-tradable, comprising overdrafts to the government and the cocoa marketing board, a COVID-19 bond and other legacy debt spanning 15 years. Interest payments on the majority of those debts had been in line with the central bank’s main interest rate, which now stands at 30%.
A Ministry of Finance letter seen by Reuters requesting legal advice from the attorney general and justice minister on the transaction said the government would exchange the principal amount of the debt at a 0.5 ratio with a 2038 bond issued in February.
“The instrument… carries an interest rate of 10%, of which 5% is paid in kind in 2023 and 2024,” said the letter, dated May 7.
The three sources, who declined to be named as the matter is confidential, confirmed that these were the final terms, but did not say when exactly the transaction was executed.
The finance ministry and the central bank did not respond to requests for comment.
Ghana, which defaulted on most external debt in December, aims to reduce its overseas debt payments by $10.5 billion over the next three years to address its worst economic crisis in a generation.
A central bank source said that the debt restructuring had inflicted a record loss on the bank of about 50 billion cedis.
“From the estimates, the loss will be on the books for the next five years or so,” they said.