The Ghana Cocoa Board (COCOBOD) is currently exploring options to refinance its debt, which was 2.5 percent of GDP at end-2020 and includes a longer-term forex (FX) collateralised loan.
According to the International Monetary Fund’s (IMF) 2021 Article IV report, this has become necessary in order for COCOBOD to regain sounder financial footing, following implementation of the Living Income Differential (LID) at the start of the 2020/21 cocoa crop season.
With COCOBOD’s current outstanding debt stock of GHC13.69billion on the domestic capital market as at the end of July 2021, according to the Central Securities Depository (CSD), the IMF is recommending that the intended issuance by COCOBOD should be closely coordinated with government and included in public debt.
In collateralising a loan, the borrower uses some of its existing assets as a security to guarantee repayment of the loan – effectively assuring the lender that there’s a means to always recover the loan.
With the specific case of COCOBOD, the cocoa beans purchases will serve as the one major asset that has been used over years as collateral. However, there’s also a restraint on a significant portion of cocoa beans because these beans are already used as collateral for the annual syndicated loans.
Launched in 2019 by Ghana and Côte d’Ivoire, the LID is a surcharge of US$400 per tonne of cocoa exports that aims to capture a larger share of the chocolate global value chain and increase the income of cocoa farmers, many of whom live in poverty.
“While the surcharge was fully passed through to farmers, the higher export price and lower global demand slowed down cocoa shipments significantly. This implicit subsidy to farmers creates a net operating loss for COCOBOD, adding to its domestic debt,” the Fund highlighted in the report.
According to the Fund, the LID initiative has raised cocoa farming incomes but inadvertently created balance sheet risks for COCOBOD. The IMF noted that COCOBOD has introduced cost control measures, including a freeze on capital expenditures until the next fiscal year, and sees debt refinancing as a step to regain sounder financial footing.
This, COCOBOD believes, alongside its strong track-record and collateralised receivables could support a longer-term external issuance. The approach could also mean that capital expenditures such as cocoa roads across the major cocoa growing areas may face some financing constraints.
Nonetheless, government in conjunction with COCOBOD – under the cocoa roads programme – has allocated an amount of GH¢456.6million to continue with the cocoa roads improvement programme in the 2020/2021 cocoa season. The cocoa roads programme is a critical arrangement to facilitate and ease cocoa evacuation from the hinterlands to the ports, and especially transport farm inputs such as fertiliser to farmers.
In the 2019/2020 crop year, a total amount of GHC742million was paid by COCOBOD for various cocoa road projects. Already, the public debt is at elevated levels of GHC334.56billion (US$58.04billion) representing 77.1 percent of GDP as at end-June 2021 – up from GHC291.6billion (US$50.8billion) at the end of December 2020.