Similar to Sri Lanka, Ghana is also looking at a IMF bailout and a First Capital Report says that the two countries have very different approaches when it comes to their debt restructuring efforts although their economies are similar.
“Ghana’s approach was to immediately restructure domestic debt despite having 58% external debt exposure while Sri Lanka has first obtained the IMF board level approval and is progressing towards the external debt restructuring process subsequent to the debt sustainability analysis.
Sri Lanka has raised its interest rates to reduce inflation, increase credit growth, and end the FX crisis. Despite having higher tax-to-GDP ratios, several countries with soft-pegged central banks, such as Ghana, Zambia, and Suriname, have defaulted after implementing similar policies. Even though Ghana had a similar debt restructuring approach like Sri Lanka it initially avoided IMF’s support and subsequently approached the IMF towards mid-2022.
Amidst high levels of debt similar to Sri Lanka, Ghana started to discuss domestic debt restructuring even before approaching the IMF. Ghana carried out its own debt sustainability analysis and decided on certain debt targets and went on to achieve it. Later Ghana negotiated a staff level agreement with the IMF but the decision for domestic debt restructuring remained with the Government. By February 2023, Ghana completed the domestic debt restructuring which resulted in a rating upgrade as well.
Ghana has completed its domestic debt exchange program, which takes it one step closer to securing the USD 3 Bn IMF bailout. Since China is Ghana’s largest bilateral creditor, both nations had a meeting during March 2023 to aid Ghana’s external debt restructuring through reliefs, lower interest rates, and moratorium extensions on debt servicing and maturities, which is a precursor to a bailout from the IMF.
Ghana’s President expects to conclude the IMF deal in March 2023.