The Director of the Institute of Statistical Social and Economic Research (ISSER), Professor Peter Quartey, has highlighted the significance of Ghana learning from Zambia’s recent Domestic Debt Exchange Programme (DDEP) during this year’s ISSER Development Dialogue.
Under the theme, ‘The Effects of a Second-Round Debt Exchange in Ghana,’ the event provided an opportunity for a valuable comparison.
Zambia successfully restructured its $6.3 billion debt owed to official bilateral creditors. This involved extending debt maturities by more than 12 years and reducing interest rates to 1.0% for 14 years, with a subsequent maximum rate of 2.5%. This strategic move was expected to save Zambia approximately $5.0 billion in debt service payments from 2023 to 2031.
In contrast, Zambia committed to repaying its official creditors about $750 million over the next decade, a substantial reduction from the initial debt of nearly $6 billion.
As Ghana progresses in its own debt exchange journey, Professor Quartey emphasized the importance of drawing lessons from Zambia’s experience.
Ghana is currently finalizing its bilateral debt agreements, and managing domestic debt poses additional challenges. One crucial lesson from Zambia is the need to safeguard domestic financial stability.
Zambia chose not to restructure non-resident holdings of local currency bonds and Treasury bills, prioritizing the health of its financial sector. This decision offers Ghana valuable insights:
- The Scramble for Treasury Bills: High-interest rates on Treasury Bills can worsen the debt situation and cause financial stress.
- Crowding Out of the Private Sector: Heavy government investment in Treasury Bills can discourage private sector investment, hindering economic growth.
- Impact on Lending Rates: High lending rates deter private-sector borrowing, affecting businesses and economic growth.
- Financial Sector Health: Protecting the stability of the financial sector is crucial for overall economic well-being.
Professor Quartey concluded by stressing the importance of Ghana’s ongoing debt exchange being informed by the insights gained from Zambia.
It is crucial to find the right equilibrium between securing favorable terms and ensuring the stability of the domestic financial landscape. This approach will pave the way for a more secure and prosperous economic future.