Anatomy of a Restructuring: The World Bank Ghana 2030 Partially Guaranteed Eurobond

Lazard's recent Policy Briefs have addressed two important and connected issues in the context of sovereign debt restructurings:

• Sovereign debt restructuring processes have failed to offer prompt resolutions. This has frustrated debtor countries eager to chart a new post-default course, and discouraged other countries plagued with excessive debt burdens from following this seemingly never-ending route. For instance, five years after its default, Zambia has still not completed its restructuring, having signed only 4 bilateral agreements with its official creditors out of 16.

• Amongst the complications is the concept of “comparability of treatment” between creditors, with some arguing that comparability should not apply to them; and the others challenging how comparability should be measured between official and commercial creditors. In this context, we previously raised the issue of a possible glut of “preferred” creditors. This creates the risk of over-subordinating commercial creditors and thus raising the cost of capital, in Africa notably. 

This Policy Brief sheds some light on a complicated case that illustrates some of the problems described above.

Ghana, in 2015, was able to raise debt on the Eurobond market (the 2030 Ghana Bond) only thanks to a partial credit guarantee (PCG) extended by the AAA-rated World Bank. Market access improved for a few years and then deteriorated significantly so that, in 2022, the government defaulted on its debt, including the 2030 Bond in its debt restructuring perimeter. This default raised a few important operational and policy issues.

The case of Ghana’s 2030 Bond indeed shows that partial guarantees from MDBs, if not well structured legally, could create perverse incentives, either delaying a restructuring or imposing a disproportionate burden on the debtor country post default. This is particularly relevant as many MDBs are, today, rolling out new guarantee products. Together with White & Case, we propose a simple fix that would ensure that partial guarantees instruments can be easily dealt with in restructuring contexts, without affecting their attractiveness ex ante. This policy paper also shows how an MDB benefiting from a preferred creditor position can usefully work to ensure that any restructuring solution is designed to be compatible with the overall objective of restoring debt sustainability for the debtor country. In other words, for an MDB with a strong policy charter, enjoying a preferred creditor position may result in its debt being outside the restructuring perimeter, but not outside the debt resolution process.