Debt relief deal paves way for critical infrastructure investment

The government has secured debt service relief that will free up resources for crucial infrastructure investments.

Minister of Finance, Dr. Mohammed Amin Adam, during a press briefing following the formalisation of a memorandum of understanding (MoU) with bilateral creditors, announced that the agreement reschedules debt payments due between 2023 and 2026, allowing the government to redirect funds previously earmarked for debt servicing towards essential public services.

“The MoU will provide significant flow relief to the Republic of Ghana. And what this means is that debt service that was due between 2023 and 2026 are being rescheduled. It means that we will not have to pay, we will not have to service our debts due between 2023 and 2026,” Dr. Adam stated.

The freed-up funds will support critical infrastructure projects, including healthcare, education, road construction, and social interventions aimed at aiding vulnerable segments of society.

Dr. Adam highlighted the transformative impact of this relief, explaining, “The money we would have used to service the debts, to pay to our official creditors as a result of the facilities they advanced to us, will now be available to the government, for the government to spend on critical infrastructure.”

Moreover, the Ministry of Finance plans to present a proposal to the Cabinet on the optimal investment of these funds, which includes establishing a buffer to facilitate debt repayment post-2026. This strategy aims to reduce the future fiscal burden on the budget.

“It has always been the government intention to put in efforts, extra efforts at reaching this agreement in order that we can get the relief as a result of the resumption of disbursement towards these projects so that these projects can be completed for the use of the Ghanaian public. And so these three benefits that our country will derive from the agreement that we have reached, you can all tell are very important benefits because they speak directly to our economy. They speak directly to our development efforts,” Dr. Adam noted.

This comes as the Ministry, on Tuesday, June 11, 2024 announced via a communique that the government had attained formalisation of a memorandum of understanding (MoU) with its Official Creditor Committee (OCC) regarding the debt treatment agreement reached earlier this year.

The formalised agreement with the OCC, which is co-chaired by China and France, it said, will not only accelerate debt restructuring efforts but also paves the way for further financial support and economic reforms, according to the ministry of finance.

The MoU solidifies the preliminary agreement made in January 2024, laying a foundation for a restoration of long-term debt sustainability by restructuring approximately US$5.4billion in obligations.

The financial terms remain consistent, providing substantial debt service relief during the period, supported by the International Monetary Fund (IMF) programme.

Dr. Adam, in the communique announcing the agreement highlighted its importance, stating: “The Ministry of Finance on behalf of the Republic of Ghana extends our gratitude to all members of the OCC, particularly the Committee’s co-chairs – China and France – for their unwavering commitment to assisting our country in resolving its debt issues.

“This landmark agreement marks an extraordinary milestone in Ghana’s debt-restructuring journey and will further strengthen our ambitious reform agenda with the strong support of our development partners,” he added.

The OCC agreement’s formalisation is anticipated to facilitate approval of the IMF’s Post Covid-19 Programme for Economic Growth’s (PC-PEG) second review by its Executive Board.

This approval will enable disbursement of the next tranche of IMF financing, amounting to US$360million; an injection that should provide temporary relief for the cedi, which has fared unfavourably since turn of the year.

Additionally, it is expected to unlock further financial assistance from key development partners – notably the World Bank.

Dr. Adam underscored the agreement’s broader implications, noting that it will enhance ongoing negotiations with private creditors.

“We are committed to engaging with all commercial external creditors in good faith. Our aim is to finalise restructuring agreements that respect Ghana’s need for debt relief and adhere to the comparability of treatment principle,” he said.

Following the agreement, each official creditor will undertake their internal procedures to sign the MoU. Upon signing, the terms will be implemented through bilateral agreements with each member of the OCC.

IMF Managing Director Kristalina Georgieva, in a tweet on the X platform said: “Congratulations to Ghana for reaching agreement with its official bilateral creditors on a Memorandum of Understanding for a debt treatment. This will support IMF Executive Board consideration of the programme’s second review later this month”.

Government has urged these creditors to expedite their internal processes to facilitate swift implementation of the agreed terms.

At this juncture, government has reaffirmed its commitment to maintaining arrears with external commercial creditors until mutually acceptable agreements are reached.

This stance is crucial to ensuring that all restructuring efforts align with the comparability of treatment principle.

Analysts agree that achieving this MoU is seen as a pivotal moment in efforts to stabilise the economy and serve as a launchpad for sustainable growth.

They remain on the lookout for further evidence of government’s efforts toward implementing necessary reforms and working collaboratively with international partners to overcome the current financial challenges.