Ghana seeking debt relief via G20 Common Framework programme
Ghana is poised to request debt relief via the G20 Common Framework programme and has sought reassurances that the negotiations can be expedited before proceeding, sources told Reuters.
The crisis-hit country, which secured a $3 billion staff-level agreement with the International Monetary Fund (IMF) in mid-December, has been hesitating due to the long delays faced by other countries using the process, one source familiar with the government's thinking said.
The West African country must restructure its debt to get the final approval to access the IMF funds. In December, Ghana launched a domestic debt exchange and later said it would default on nearly all of its $28.4 billion of external debts.
Ghana's public debt was 467.4 billion cedis ($47.7 billion) in September 2022, of which about $4 billion was bilateral, according to the Institute of International Finance. Of that, $1.9 billion was held by Paris Club of creditor countries and $1.7 billion by China.
The source said Ghana had reached out to the Paris Club in December to ask for assurances that the Common Framework process, set up by the Group of 20 leading economies in 2020 in response to COVID-19, could be expedited.
If it received such assurances, the government would quickly sign onto the Common Framework, the source said, speaking on condition of anonymity.
A Paris Club official told Reuters that the group had received a letter from Ghana's government, but declined to give further detail.
Another source with knowledge of Ghana's debt restructuring said it was hard to see any other outcome for Ghana than signing up to the Common Framework as they have left themselves no other options.
Ghana's finance ministry did not respond to a request for comment.
The Common Framework, designed to allow for speedy debt reworks, has been widely criticized for its glacial progress. Chad, Ethiopia and Zambia signed up in early 2021. While Chad secured a deal with creditors in November, Zambia is still locked in talks. Ethiopia's progress was held up by civil war.
Only poorer nations are eligible to request a Common Framework treatment, which will lead to an official creditor committee being convened and negotiations that are supported by the IMF and the World Bank.
Alternatively, a country aiming to restructure can do so by negotiating individually with each creditor.
In October 2022, World Bank Group President David Malpass said Ghana should have signed on to the Debt Service Suspension Initiative (DSSI) so the West African country could have enjoyed a freeze on debt while the gold-, cocoa- and oil-producing country restructured its debt.
At the start of the Covid-19 pandemic, the World Bank and the International Monetary Fund urged the G20 to set up the DSSI.
Established in May 2020, the DSSI helped countries concentrate their resources on fighting the pandemic and safeguarding the lives and livelihoods of millions of the most vulnerable people.
Forty-eight out of 73 eligible countries participated in the initiative before it expired at the end of December 2021.
From May 2020 to December 2021, the initiative suspended $12.9 billion in debt-service payments owed by participating countries to their creditors.
The G20 also called on private creditors to participate in the initiative on comparable terms.
Regrettably, only one private creditor participated.
The World Bank and the IMF supported the implementation of the DSSI—by monitoring spending, enhancing public debt transparency, and ensuring prudent borrowing.
DSSI borrowers committed to using freed-up resources to increase social, health, or economic spending in response to the crisis.
They pledged to disclose all public sector financial commitments (involving debt and debtlike instruments).
They also committed to limiting their nonconcessional borrowing under the IMF arrangements and the World Bank’s Sustainable Development Finance Policy.
Answering questions at a programme in Washington D.C. on debt cancellation for African countries and the apparent lethargy of the Bretton Woods institution in that regard, Mr Malpass said: “Kristalina [IMF Boss] and I were talking yesterday with the Group about the Common Framework. If countries could have a situation where the common framework clause allows the country to have a standstill on debt, that would help the country choose their path forward on debt restructuring. That would mean they would get a break on debt repayment while they work on debt restructuring”.
However, he said: “Nigeria and Ghana both, did not ask for the common framework treatment”.
Ghana has signed a staff-level agreement with the IMF for a $3-billion relief to stabilise the faltering economy.
The country has also launched a debt-restructuring progranmme.