According to three sources who have firsthand knowledge of the transaction, the government of Ghana has written off half of the 77.6 billion cedis ($7 billion) that it owes to the central bank and substituted the remaining of the debt with a lower yielding, 15-year bond.
The most recent action is being taken as part of an ongoing effort by the West African nation to restructure its domestic debt. Meeting this condition is necessary in order to become eligible for the next installment of a rescue loan from the International Monetary Fund (IMF) in the amount of $3 billion. The current priority for Ghana is to concentrate on negotiations with various outside creditors.
In February, the gold, oil, and cocoa producer brought the first phase of its domestic debt restructuring to a successful conclusion. At that time, 85 percent of eligible bondholders exchanged their existing local currency bonds for new longer-dated notes that had lower interest rates. This includes the transaction carried out by the Central Bank, which was worth 17 billion cedis.
The government is currently in the process of restructuring domestic debt totaling 123 billion Ghana cedis. This includes domestic U.S. dollar bonds, cocoa bills, pension funds, and debt owing 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 source said. "There was no agreement."
"It was made abundantly clear to us by the IMF that we will not be able to achieve our target regarding the restructuring of the debt if we do not include the [central bank debt]."
According to the official, the non-tradable central bank debt that had been written off included overdrafts to the government and the cocoa marketing board, a COVID-19 bond, and other legacy debt spanning 15 years. This debt had been written off because it was no longer a viable financial asset. Interest payments on the vast majority of those obligations had been in accordance with the principal interest rate that is currently being offered by the central bank, which is currently at 30%.
According to a letter from the Ministry of Finance that was obtained by Reuters and which requested legal guidance on the transaction from the attorney general and the minister of justice, the government intended to exchange the principal amount of the debt at a ratio of 0.5 with a 2038 bond that was issued in February.
The letter dated May 7 stated, "The instrument... carries an interest rate of 10%, of which 5% is paid in kind in 2023 and 2024." This information was included in the letter.
These were confirmed to be the final terms by the three sources, who did not wish to reveal their identities due to the sensitive nature of the situation. However, they did not reveal when exactly the deal was finalised.
The Ministry of Finance and the Central Bank Neither responded to our requests for comment on this matter.
Ghana, which defaulted on most of its foreign debt in December, plans to cut its payments on its abroad debt by $10.5 billion over the next three years in order to handle the greatest economic crisis the country has faced in a decade.
According to a source within the central bank, the debt restructuring resulted in a record loss for the bank, which was somewhere around 50 billion cedis.
They stated that, according to the estimations, the loss would be recorded on the books for approximately the following five years.
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