The World Bank’s International Development Association (IDA) has stepped in to make a guarantee payment of $372 million on behalf of the Government of Ghana for the 2030 Eurobond, following the country’s default on its coupon payment on April 14, 2023, due to a debt moratorium that was announced on December 19, 2022. The payment was made on April 20, 2023.
Ghana has had a history of facing challenging market conditions, with large financing needs, high debt levels maturing soon, and no access to international financial markets. The Ministry of Finance sought help from the World Bank in 2015 to address these challenges and requested a policy-based guarantee in combination with a credit from IDA, the World Bank’s fund for the poorest countries. This was to mobilize the volume of financing required to settle upcoming debt repayments.
The policy-based guarantee is an instrument that allows a country to raise funds by mitigating the risk for bond investors or commercial lenders in case of potential debt service payment defaults. In the case of Ghana, the country issued a $1 billion Eurobond series due in 2030, backed by IDA’s guarantee covering up to $400 million in both principal and interest.
Since then, the government has bought back and canceled $70 million of the 2030 Eurobond, reducing the amount of the guarantee to $372 million. Ghana used the proceeds of the 2030 Eurobond issuance to refinance existing debt that had an interest rate of 25% to a lower rate of 10.75%. Additionally, the maturity of the existing debt, which was between 90 days and two years, was increased to 15 years on average.
On December 19, 2022, the Ministry of Finance declared a moratorium on debt service payments under certain categories of its external debt, such as Eurobonds, due to major economic, financial, and social pressures. Soon after, the government restructured the bulk of its domestic debt and requested debt treatment under the G20 Common Framework.
The World Bank’s intervention in making the guarantee payment for Ghana’s 2030 Eurobond highlights the importance of policy-based guarantees in facilitating access to financing for countries facing difficult market conditions. It also emphasizes the role of international institutions like the World Bank in supporting developing countries’ efforts to manage their debt levels and meet their financial obligations.
Norvanreports