Inflation is 40% and the debt is junk according to Bloomberg Ghana, the world's worst performing currency. It is asking bondholders to accept losses on their investment because it struggles to get to grips with a rapidly deteriorating situation.
The government hopes to start talks with investors by the end of the month. It hired Lazard Ltd. As advisers to Global Sovereign Advisory and Hogan Lovells US LLP, Reuters reported earlier this month. Some bondholders have tapped Rothschild Co and Orrick, Herrington Sutcliffe LLP as advisers, according to the Wall Street Journal.
According to Bloomberg, Fidelity Institutional Asset Management, Goldman Sachs Group Inc and Pimco are the publicly announced holdings of the dollar-denominated bonds that lost half of their value this year.
As part of any restructuring, Ghana will have to agree to tough measures to get its finances in order. It is a price it will have to pay to get a deal through and move it closer to a crucial bailout. Since September it has been in negotiations with the International Monetary Fund about a $3 billion program after being shut out of international debt markets.
Carlos de Sousa, a portfolio manager at Vontobel Asset Management in Zurich, said a harsh restructuring can only be accepted if there is a credible and strict fiscal adjustment. If the government proposes a harsh restructuring but a soft fiscal adjustment, it will be perceived as putting the burden on creditors. While there are specific reasons behind the collapse of Ghana, it is also another warning from the world of emerging markets, where economies are struggling to recover from the epidemic or facing pressure on debt payments because of the strong US dollar.
Ghana's cedi is down 60% this year, the worst performance of any currency. Other big losers include the Sri Lankan rupee, Argentina's peso and Turkish lira, all of which are facing balance-of- payments problems.
The decision to seek a haircut on foreign bonds comes just weeks after President Nana Akufo-Addo said the bailout talks wouldn't result in losses for holders of external debt.
The yield on 2032 dollar securities fell by 68 basis points to 30.29%, according to Bloomberg generic pricing. That shows investors were not prepared for a restructuring announcement.
Charlie Robertson, global chief economist at Renaissance Capital, said in an email that the markets might welcome this dose of realism from Accra, especially since it will help bring the IMF on board. It built up debt because of excessively large deficits budget and current account deficits for many years, and avoiding that would have required stringent austerity in 2021 and an IMF deal then. In a bid to calm investor nerves, Deputy Finance Minister John Kumah indicated that the government won't try to force anything on them.
He told Joy Fm radio in Accra that we know our bondholders, but it is not like it is a big market out there. It is a matter of constructing discussion and seeing how best we can come to a position that protects either side and saves the economy. None of the cliches of the digital currency is helping Couples to rekindle their relationshipships.