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Ghanaian President Nana Akufo-Addo with Chinese President Xi Jinping in 2018. Photo: Andy Wong/Getty Images

It is one of the biggest, if hardly unexpected, sovereign bond defaults in 2022. Ghana announced on Monday that it will no longer service most of its external debt, including all payments owed to private sector bondholders and other creditors.

Why is it important? There is often a very large gap between the point at which default becomes inevitable and the point at which it actually occurs. (Venezuela sat in that gap for years.) Ghana seems to have decided that if you’re going to do it, you might as well do it early.

The big picture. Ghana recently agreed to a $3 billion loan program with the IMF. (IMF and World Bank debts are not included in the impasse, nor are debts incurred after today).

  • The IMF does not want those 3 billion dollars to be transferred to foreign creditors, on the contrary. It wants foreign lenders to do their part in reducing Ghana’s debt and made the $3 billion conditional on Ghana reaching an agreement with its foreign creditors. Still announcing is the hard way to get that kind of agreement.

Between the lines. In general, debt restructuring can be “market-friendly” or “mandatory.” Favorable market restructuring takes place after negotiations. Foreclosure usually occurs after the country has already defaulted and creditors get nothing. Ghana’s decision on Monday means they have decided to go the coercive route.

What we are watching. Ghana owes China about $3.5 billion. It may be the most important of all debts to restructure, and other creditors are unlikely to make a deal for less than the Chinese are getting.

Bottom line: Ghana’s debts will eventually be restructured, but don’t hold your breath. This one may take a while.

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