Ghana is close to finalizing a deal with its pension funds to reorganize $2.6 billion of its local debt, an industry group said. The deal will give the pension funds more interest income, but they will have to wait longer to get their principal back, Thomas Esso, the executive secretary of the Chamber of Corporate Trustees, said.
The pension funds will swap their current bonds, which have an average interest rate of 18.5% and mature sooner, for two new bonds that will pay 8.4% and mature in 2027 and 2028. To compensate for the lower interest rate, the government will also give the pension funds some extra bonds that were issued in February and a cash instrument that pays 10% interest.
This will result in a total interest income of 21% for the pension funds, Esso said. “Our main concern is to protect the value of our pension funds,” Esso said in an interview. “We realized that the proposal meets that goal. It captures that.” The deal is separate from the talks that the government is having with the labor unions, who also represent some pension fund members. A memorandum on the debt swap may be issued after those talks are concluded, he said.
Ghana excluded the pension funds, who own 29 billion cedis ($2.6 billion) of government bonds, from the first phase of its domestic debt restructuring in December after the labor unions threatened to go on strike over fears of losing their savings. Ghana started restructuring its public debt in December to qualify for a $3 billion program from the International Monetary Fund.
The IMF approved the package in mid-May and disbursed $600 million immediately. The government completed the first phase of its domestic debt swap in February, where it exchanged 87.8 billion cedis, or 67%, of its existing bonds for new ones with lower interest rates and longer maturities. The new bonds paid as low as 8.35% interest, compared with an average of 19% on the old ones.
Ghana’s future disbursements from the IMF will depend on how well it meets its fiscal targets under the program. That’s why the government is trying to restructure its eurobonds, agree on specific terms with its bilateral creditors, and finish the rest of its domestic debt swap.
The risk premium on Ghana’s dollar debt has dropped by about 640 basis points from a record high in March to 2,838 over US Treasuries on Wednesday, according to a JPMorgan Chase & Co. index.