Debt Exchange is Debt Restructuring whichever way you look at it – Lord Mensah

The Debt Exchange programme that has been launched by the government is Debt Restructuring whichever way one looks at it, a Professor at the University of Ghana Business School, Lord Mensah has said.

The Finance Minister Ken Ofori-Atta launched the programme in Accra on Monday December 5.

The objective of this programme, he said, is to alleviate the debt burden in a most
transparent, efficient, and expedited manner.

In this context, by means of an Exchange offer, the Government of Ghana has been working hard to minimize the impact of the domestic debt exchange on investors holding government bonds. he said.

In particular, he added, it does not embed any principal haircut on Eligible Bonds, “as we
promised. Let me repeat this fact as plainly as I can, in this debt exchange individual holders of domestic bonds are not affected and will not lose the face value of their investments. So let us remove any doubt and discard any speculation that the Government is about to cut your retirement savings or the notional value of your investments. That is not the case.

“As already announced, Treasury Bills are completely exempted, and all holders will be paid the full value of their investments on maturity. There will be NO haircut on the principal of bonds. Individuals who hold bonds will also not be affected at all.

“Our domestic debt operation involves an exchange for new Ghana bonds with a coupon that steps up to 10% as soon as 2025 (with a first interest payment in 2024) and longer average maturity. Existing domestic bonds as of 1st December 2022 will be exchanged for a set of four new bonds maturing in 2027, 2029, 2032 and 2037.

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“Predetermined allocation ratio are as follows: 17% for the short bonds, 17% for the intermediate bond, 25% for the medium-term bond and 41% for the long-term bond. The annual coupon on all of these new bonds will be set at 0% in 2023, 5% in 2024 and 10% from 2025 until maturity. Coupon payments will be semi-annual. For emphasis, this domestic debt exchange programme will not affect individual bondholders.”

Commenting on this on the mid day news on TV3, Professor Mensah said the Finance Minister did not tell “us how much is going to save from this.”

“That did not come out clear.  Whichever way it is a debt restructuring and that is what we expected.”

Prior to this announcement, some analysts including Former Finance Minister Mr Seth Terkper had indicated that debt restructuring in Ghana was unavoidable given the spending that had been engaged in by the government over the period.

Ghana commenced discussions with domestic bondholders on a restructuring of its local-currency or cedi debt as part of plan to secure a $3 billion loan from the International Monetary Fund.

Bloomberg reported that the nation’s largest debt investors including local banks and pension funds are preparing to engage in discussion on debt reorganization that could entail extension of maturities and haircuts on principal and interest payments, according to people familiar with the matter, who asked not to be identified because they are not authorized to speak publicly.

The restructuring would be part of a debt-sustainability plan required by the International Monetary Fund (IMF) and will include part of the $19 billion Ghana has in outstanding local debt.

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Speaking on the Ghana Tonight show on TV3 with Alfred Ocansey, Monday September 26, Mr Terkper said “Debt restructuring at this point is inevitable because if you are having difficulties paying your bills …you have to be smart with your borrowing otherwise, the debts keep increasing. The alarming part of it which we have not highlighted very much is the intervention of Bank of Ghana.

“Remember we moved from Zero financing in 2016 to Bank of Ghana coming to the aide of government, gradually and reaching a peak of 10billion Cedis which is 1.7bn US dollars more than the Covid loan that we took and the World Bank and other injections.”

The Ministry of Finance and the Bank of Ghana have commenced discussions with the IMF for an IMF-supported programme.

A key prerequisite for a programme is confirmation that Ghana’s debt is on a sustainable path.

This will require a comprehensive Debt Sustainability Analysis (DSA), which is currently ongoing.

A statement issued by the Finance Ministry on Monday September 26 said the Government of Ghana is putting together a comprehensive post Covid-19 economic programme which will form the basis for the IMF negotiations.

“The programme seeks to establish a macro-fiscal path that ensures debt sustainability and macroeconomic stability underpinned by key structural reforms and social protection.

“Government negotiations with respect to the IMF-supported programme is commencing this week and we are optimistic about making progress in our discussions.

“Government remains committed, and shall continue to actively engage all stakeholders, both public and private, in a clear and transparent manner as we seek to fast-track this process.”

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By Laud Nartey||Ghana