Ghana’s deal with the IMF will only impact agriculture and cocoa

It is still too early to know whether the $3 billion loan agreement concluded Monday between Ghana and the IMF will have direct consequences on the cocoa sector, a fully integrated public sector and major foreign exchange earner in the country, as well as on the Ghanaian agricultural world in general. But there is no doubt that direct or indirect, the impact will be felt (read our information: Cocoa bonds to the rescue of Ghana’s finances). This leads us to take a closer look at the Ghanaian debt situation and the signed agreement.

First, there was urgency. Ghana’s public debt was estimated at 467.4 billion cedis ($37.4 billion) in September according to figures from the Central Bank last month, including 58% external debt and 42% internal debt. On Monday, the Minister of Finance Ken Ofori-Atta specified that it now represented more than 100% of GDP; 70% to 100% of government revenues go to paying debt interest. According to the Fitch rating agency, Ghana has the worst debt situation in the world, just after Sri Lanka, which holds the sad palm of gold.

Regarding its external debt, Ghana holds $13 billion in Eurobonds, with holders including major global asset managers such as BlackRock, Vontobel, AllianceBernstein, Neuberger Berman and PIMCO, Reuters reports. It’s unclear whether a $1 billion 2030 Eurobond, which has a $400 million World Bank guarantee and trades well above other unsecured bonds, will be included in the restructuring. debt, says the agency. At the end of 2021, Ghana had $3.2 billion in bilateral debt and $6.3 billion with multilateral institutions, including $4.6 billion with the World Bank, according to data from the latter.

Note that in September, the IMF asked Ghana to include the $1.3 billion Cocobod syndicated loan contracted with a consortium of international banks to finance the 2022/23 cocoa season, as well as the loan of 2 billion from Sinohydro in China in order to have a precise idea of ​​the overall public debt.

As for domestic debt, including that of public companies and towards these companies (including Cocobod), commercial banks hold a third, according to the country’s Central Securities Depository. Other major holders include foreign investors, pension funds and the central bank. The creation of a local debt exchange to convert maturities, reduce rates and freeze interest payments until 2024 has been very well received by international investors.

“It’s the right first step in this process (…) local debt service has been way too high for too long“, told Reuters Joe Delvaux, of Europe’s largest asset manager, Amundi. “The outcome of the agreement (with the IMF) is another positive step, although we are still in the early stages of the restructuring process.

In addition, the creation of a $1.2 billion financial stabilization fund is underway, but this would not reassure all bondholders.

What Cocobod? Her The situation is all the more delicate as cocoa production in Ghana is declining.

At the end of August, Ghana’s Comptroller General of Finance expressed his concern over the Board’s growing debt (read our information: Highly indebted, Cocobod on a financial road show to raise $ 1.3 billion). Thus, at the end of its fiscal year 2019/20, its debt stood at 12.3 billion cedis (approximately $1 billion) including short-term loans of approximately 8.49 billion cedis, a loan to 10 years of the Bank of Ghana of nearly 1.4 billion cedis and a medium-term loan of a total of 1.28 billion (read our information: Highly indebted, the Cocobod in financial road show to raise $ 1, 3 billion).

The management of Cocobod then announced that it would put in place stricter controls so that its debt not only does not worsen but that savings are generated in order to repay all its debt. One of his measures was the issuance of bonds of up to $3 billion. On the other hand, relatively inexpensive long-term debt would be used to refinance more expensive shorter-term debt.

According to the Comptroller General, the government would owe $2.25 billion cedis to Cocobod at the end of September 2020 linked, among other things, to the supply of beans from Genertec International Corporation (GIC), the guaranteed producer price mechanism and overpayments by Cocobod in export taxes for GIC.

In short, a financial statement of the sector to be clarified….

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Ghana’s deal with the IMF will only impact agriculture and cocoa