The Institute of Economic Affairs (IEA) has asked the government to keep individual bondholders, rural banks, and pension funds out of the Domestic Debt Exchange Program (DDEP).
Dr. John Kwakye, the Institute’s Director of Research, asserts that given their financial weakness, which would be impacted by the debt restructuring effort, the move is essential.
On January 24, 2023, Dr. Kwakye told media at a discussion held in Accra that contributions from rural banks are largely for the underprivileged and that their inclusion in the DDEP would rob them of their hard-earned money.
“Rural banks again? Because they take monies from poor people and invest in government bonds, why will you seize their monies? If there is anything at all, deal with the commercial banks,” the IEA Director stressed.
Touching on the three-year moratorium on repayment of principal under the DDEP, Dr Kwakye described the move as regressive and therefore wants government to rather implement a new coupon of 8-12% over the new maturity period.
“They need to adopt a new coupon regime of 8-12 percent over the new maturity period and also consider abolishing the 3-year moratorium on the repayment of principal to save individuals and banks”, he added.
He, however, advised that for any debt restructuring to be successful, it must safeguard the stability and integrity of the financial system.
He added that it must also be designed to prevent capital flight and increase in the cost of borrowing among others.
“There must be proper stress-test exercise at the institution-by-institution level to study the impact of different DDE proposals on financial sector viability and stability and it must not impair government ability to fund itself on an on-going basis,” Dr. Kwakye outlined.