Director of Research at the Bank of Ghana (BoG), Dr. Philip Abradu-Otoo, has clarified that obtaining a bailout from the International Monetary Fund (IMF) would have been difficult without implementing the Domestic Debt Exchange Programme (DDEP).
To stabilize the economy, the government initiated the IMF program and introduced the DDEP, which led to some bondholders experiencing reductions in their investments and coupons.
In 2022, the BoG reported a loss of GHS 60.9 billion due to impairments from the domestic debt exchange program.
In an interview with Bernard Avle on The Point of View on Citi TV, Dr. Abradu-Otoo highlighted the challenges the government would have faced without the DDEP, noting that they would have needed to revisit other components of the program.
Dr. Abradu-Otoo attributed the BoG’s 2022 losses to the domestic debt exchange program.
“The biggest one was the impairment we had on the securities we were holding. Like any other individual, the BoG also held government securities. Out of that GHS 60.9 billion, GHS 48 billion were impairments—losses incurred on our books due to the DDEP.”
He emphasized, “For the debt exchange program, nobody had a haircut on the principal. For the BoG, we had a side haircut, a top haircut, and the amount itself was cut into two. We had three cuts because we needed to secure the IMF program. It would have been tough to move forward quickly. Then we would have had to revisit other parts of the DDEP.”
When asked if the BoG would have disagreed with the impairment if given the choice, he confirmed, “Yeah.”
A Memorandum of Understanding (MoU) for the early recapitalization of the Bank of Ghana is expected to be signed by the end of the third quarter of this year. This follows significant losses by the Central Bank for two consecutive years.
The MoU is a strategic move to restore the financial health of the central bank and improve its equity position after posting a GHS 10.5 billion loss in 2023 due to high expenditure related to monetary interventions and a GHS 60.9 billion loss in 2022 from impairments during the domestic debt exchange program.
The Ministry of Finance and the Bank of Ghana will sign the MoU to ensure the Central Bank can continue its mandate of managing monetary policy and ensuring price stability.
“The biggest one was the impairment we had on the securities that we were holding. Just like any other individual, the BoG was also holding government securities. Out of that GHS 60.9 billion, GHS 48 billion of that were impairment. That is the losses that we incurred on our books, as a result of the DDEP.
He emphasised, “For the debt exchange programme, nobody had a haircut on the principal…for the BoG, we had the side haircut, and top haircut and the amount itself was cut into two. We had three, we had to do that because we needed that to secure the IMF programme. It would have been tough to move forward very fast. Then we would have come back to the drawing board and relook at the other parts of the DDEP.”