The Minister of Finance, Ken Ofori-Atta and his team have launched the Ghana’s Domestic Debt Exchange programme which is aimed at restoring macroeconomic stability.
The Finance Minister’s press release on December 4, 2022 disclosed this to Ghanaians and its launch date on December 5, 2022 ending the statement with a Biblical inspiration.
Good Evening Ghanaians,
In the Budget Statement presented to Parliament on November 24th, I announced that government will undertake a debt operation programme. The broad contours of the Debt Sustainability Analysis has been concluded and I am here this evening to provide some details on Ghana’s Domestic Debt Exchange which will be launched tomorrow. External debt restructuring parameters will be presented in due course.
Under the Programme, domestic bondholders will be asked to exchange their instruments for new ones. 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. 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.
Our commitment to Ghanaians and the investor community, in line with negotiations with the IMF, is to restore macroeconomic stability in the shortest possible time and enable investors to realize the benefits of this Debt Exchange.
The Government of Ghana has been working hard to minimize the impact of the domestic debt exchange on investors holding government bonds, particularly small investors, individuals, and other vulnerable groups.
In line with this:
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.
Individual holders of bonds will not be affected.
The Government recognizes that our financial institutions hold a substantial proportion of these bonds. As such, the potential impact of this exchange on the financial sector has been assessed by their respective regulators.
Working together, these regulators have put in place appropriate measures and safeguards to minimize the potential impact on the financial sector and to ensure that financial stability is preserved.
Specifically:
The Bank of Ghana, the Securities & Exchange Commission, the National Insurance Commission, and the National Pensions Regulatory Authority will ensure that the impact of the debt operation on your financial institution is minimized, using all regulatory tools available to them.
A Financial Stability Fund (FSF) is being established by Government with the help of development partners to provide liquidity support to banks, pension funds, insurance companies, fund managers, and collective investment schemes to ensure that they are able to meet their obligations to their clients as they fall due.
These are difficult times and we count on the support of all Ghanaians and the investor community to make the exercise successful.
We are confident that these measures will contribute to restoring macroeconomic stability. With your understanding and support and that of the entire investor community, we shall overcome our current difficulties, and with the help of God, put our economy back on the path of renewed and robust growth.
As 1st Samuel 30:19 says, nothing was missing, small or great. I say to you, nothing will be lost, nothing will be missing, and nothing will be broken. We will, together, recover all.
Thank you and God bless our homeland Ghana.
On Monday, December 5, the Finance Minister, Ken Ofori-Atta announced the Ghana’s Domestic Debt Exchange programme and accompanying effects on key stakeholders.
The President of Ghana in his televised state of the nation address on the Ghanaian economy hinted that there would be no “haircut”, a term Ghanaians are yet to get clarity on.
“Haircut” simply means realized investor losses and the announcement of the Ghana’s Domestic Debt Exchange programme may go contrary to President Akuffo-Addo’s claims.
Myriad thoughts, explanations and opinions have poured in . Some analysts have mentioned that domestic bonds more than a year will be affected, thus interests on bonds known as coupons.
What are Bonds?
A government bond represents debt that is issued by a government and sold to investors to support government spending.
Some government bonds pay periodic coupon interests. Other government bonds do not pay coupons and are sold at a discount.
Government bonds are regarded low-risk investments due to the government backing they wield.
Details of Ghana’s Domestic Debt Exchange Programme
Under the domestic debt exchange, local bonds will be exchanged for new ones maturing in 2027, 2029, 2032 and 2037 and their annual coupon will be set at 0% in 2023, 5% in 2024 and 10% from 2025 until maturity.
Ofori-Atta mentioned that government wanted to reduce the impact of the debt swap on small investors hence this would not apply the terms to Treasury bills or to holders of individual bonds.
According to Ken Ofori-Atta, the exchange programme prerequisite to sealing a deal with the IMF and would not negatively or significantly impact individual bond holders, retirement savings and treasury bills.
So let us remove any doubt and discard any speculation, that the government is about to cut retirement savings or the notional value of your investment, that’s not the case.
As already announced, treasury bills are completely exempted and all holders will be paid the full value of their investment in maturity.
There will be no haircut on the principal of bonds, individual who hold bonds would also not be affected at all.” He clarified.
The Minority in parliament have expressed their disappointment in the announcement and questioned why this was missing in the 2023 budget presentation by Ken Ofori-Atta. According to him, the debt restructuring policy wasn’t captured in the 2023 budget and added that his side will use every legitimate means to oppose the move.
How come the contours of this exchange programme were not announced in the budget statement that was presented to parliament? Were investors consulted, were bondholders consulted, and how did he come to this conclusion?
He further mentioned that the proposed debt restructuring without recourse to parliament is in contrary to the 1992 constitution and will be rejected by the minority.
Some Questions from the populace
- Will there be a haircut on the principal of bonds?
- Individual bond holders, who are they?
- What would be the exemptions?
- When would bond holders realize interest on their principal?
- Are pensioners going to be safeguarded against losses?
Ghanaians especially bond holders expect clarifications soon as speculations and panic have already kindled.
