Ghana can’t sign onto IMF programme without agreeing to debt restructuring exercise – Quartey

The Director of the Institute of Statistical, Social and Economic Research (ISSER) of the University of Ghana, Professor Peter Quartey has said Ghana cannot sign onto a programme with the International Monetary Fund (IMF) without agreeing to a debt restructuring exercise.

Currently, the government is in discussions with the Fund for a possible programme to help deal with the economic situation.

The Finance Minister Ken Ofori-Atta on Monday December 5 launched the Debt Exchange programme to invite holders of domestic debt to voluntarily exchange approximately GHS137 billion of the domestic notes and bonds of the Republic, including E.S.L.A. and Daakye bonds, for a package of New Bonds to be issued by the Republic.

Mr Ofori-Atta excplained the basis for this programme saying, the Debt Sustainability Analysis (DSA) demonstrated unequivocally that Ghana’s public debt is unsustainable, and that the Government may not be able to fully service its debt down the road if no action is taken.

Indeed, debt servicing is now absorbing more than half of total government revenues and almost 70% of tax revenues, while our total public debt stock, including that of State-Owned Enterprises and all, exceeds 100% of our GDP. This is why we are today announcing the debt exchange which will help in restoring our capacity to service debt.

But some stakeholders are rejecting the programme.

Speaking on the Ghana Tonight show with Alfred Ocansey on TV3 Monday December 5, Prof Quartey said the government needed to have engaged stakeholders to agree on the terms of the prigramme prior to its launch.

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He said “I think in all of these there is the need for consultation or consensus building. It is very critical because you are going to touch people’s funds and certainly, they have to agree to the terms or whatever you want to propose.

“I know that there has been some initial consultations but I don’t think that has been wide enough, that has been deepened enough and therefore, going forward, I think government should consult labour, consult pension fund holders, etc so that there is some consensus building in this because we are in this together, without consultations you cannot move forward.

“We cannot also sign onto an IMF programme if we do not agree to a debt restructuring exercise.”

The Chamber of Corporate Trustees is among the institutions that are rejecting the Debt Exchange programme that was launched by the Finance Minister Ken Ofori-Atta on Monday December 5.

In their view, the government’s prodigals are “inferior to market expectations and will destroy the savings of Ghanaians and further undermine market confidence”.

“This is why we reject it outright. We indulge contributors to pension funds and actors in the pensions industry to remain calm as we seek the best outcome in our negotiations with the Ministry of Finance,” the Chamber said in a statement on Tuesday December 6.

The Finance Minister Ken Ofori-Atta further explained during the launch of the programme that the objective is to alleviate the debt burden in a most transparent, efficient, and expedited manner.

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

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“In particular, 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.”

He further stated that “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.

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“This domestic debt exchange is part of a more comprehensive agenda to restore debt and financial sustainability. We are also working towards a restructuring of our external indebtedness, which we will announce in due course. This is a key requirement to allow Ghana’s economy to recover as fast as possible from this crisis. This is also a key requirement to secure an IMF support.”

By Laud Nartey||Ghana