The Paris Club announced on Friday that the official sector creditors of Ghana have established a committee for debt restructuring discussions that would be co-chaired by China and France. This opens the door for approval of a $3 billion IMF loan for the nation.
The country of West Africa is enduring the worst economic crisis in a generation, having written off its domestic debt in February and defaulting on the majority of its foreign debt in December.
The Paris Club, a group of wealthy creditor nations, stated on its website that “Creditor Committee Members are committed to Negotiate with the Republic of Ghana (on) Terms of a Restructuring of Their Claims.”
The official creditors’ statement gave “the necessary financing assurances for the IMF Executive Board to consider the proposed Fund-supported program,” according to IMF Managing Director Kristalina Georgieva.
In December, Ghana and the IMF reached a staff-level agreement for the $3 billion bailout package. However, the IMF board must approve the transfer of funds, which necessitated funding guarantees from official creditors.
The Ghanaian finance ministry said on Twitter that the country was prepared to attend the IMF board.
The official announcement and confirmation of the support of the creditor committee were first reported on Thursday.
Under the framework of the Common Framework for the Group of 20, Ghana is pursuing a restructuring of its foreign debt.
Approximately $5.4 billion of debt to official creditors and $14.6 billion of debt to private foreign creditors have been designated for restructuring, according to government data.
Ghana, a country with already-strained finances, risks a debt overhaul after its finances collapsed amid the economic effects of COVID-19 and Russia’s invasion of Ukraine, along with some other smaller, riskier emerging countries like Zambia and Sri Lanka.
On Friday’s news, Ghana’s foreign bonds jumped substantially, some by as much as 1.4 cents in the dollar, albeit they still trade at extremely distressed prices of between 36 and 40 cents, according to Tradeweb statistics.
“It’s quite encouraging that the process is moving forward in a relatively smooth timely manner,” said Carlos de Sousa, a portfolio manager at the investment firm Vontobel.
According to Kathryn Exum, Co-Head of Sovereign Research & Strategy at Gramercy, it was also “constructive” and supported the idea that Ghana would be able to reach an agreement with bondholders by July.
