Don’t use same debt restructuring tactics against foreign creditors – Prof Gatsi warns Gov’t

Government is grappling with challenges in its debt restructuring negotiations with external creditors as it seeks to secure the second tranche of the $3 billion cash from the International Monetary Fund (IMF).

According to Professor John Gatsi, Dean of the University of Cape Coast Business School, the government cannot employ the same tactics used for domestic bondholders, emphasizing the difficulty in reaching consensus with commercial creditors.

Ghana has missed the November 1 deadline set by the IMF for the release of the second tranche of the $3 billion bailout facility. The country is currently engaged in discussions with external creditors, seeking debt relief totaling $10.5 billion. The Finance Minister has submitted proposals, including a potential 40% haircut and additional debt restructuring, sparking challenges in reaching a consensus.

The resistance from commercial creditors, particularly regarding the significant 40% reduction in interest, has led to a deadlock in negotiations, delaying the release of the second tranche of the IMF funds.

Professor John Gatsi underscores the challenges faced by the Government of Ghana in convincing external creditors to accept proposed terms for debt restructuring. While bilateral and multilateral creditors may show flexibility, commercial creditors remain resistant to significant interest reductions, creating an impasse in the negotiation process.

“The Government of Ghana is pleading with the creditors to accept the certain elongation of maturity of the debts and some cuts, about 30 to 40 percent on the interest or the coupons that they expect.

“It is very difficult for commercial creditors to see a chunk of the interest wiped away, I believe that is where the disagreement is and they have not come to terms with it yet. That is why we couldn’t meet the target.”

“If the terms proposed by the government are acceptable to the creditors then that would have been a done-deal but since there are no common grounds they need to negotiate their way through.

“One thing we need to bear in mind is that external credit agreement on debt restructuring is not the same as debt restructuring in the domestic setting where the government can use all kinds of tactics and strategies to get the investor stakeholders to agree to the position of the government, that is not the same. If you do that, you will crash,” he stated.

The intricacies of Ghana’s debt restructuring efforts come to the forefront as external creditors pose challenges to the government’s proposals. Professor Gatsi emphasizes the disparities between domestic and external debt restructuring, highlighting the need for nuanced negotiation strategies to avoid potential economic repercussions.

Ghana received the first tranche of $600million in May this year.

The cash, according to the Ministry, was to help restore macroeconomic stability, sustain the country’s debts and lay a strong foundation for inclusive growth.

Source:norvanreports