Dr. Patrick Assuming, an economist, has urged Ghanaians not to make “unexpected cash withdrawals” (panic withdrawals) as the government gets ready to restructure its debt.
The International Monetary Fund (IMF) loan support for Ghana’s domestic economic program would restore macroeconomic stability, which will enable domestic investors to maintain their faith in the economy and prosper.
When a debtor (in this case, the Government of Ghana) realizes they will not be able to pay the debt as originally planned, they may negotiate with the lender for assistance. This is known as debt restructuring.
In such a situation, the debtor (government) negotiates with the lender (financial institutions) to either extend the time of payment or agree to reduce the amount that is supposed to be paid back by the lender (which is referred to as a haircut).
Dr Asuming, who is a Senior Lecturer at the University of Ghana, told the Ghana News Agency that the Government would go for domestic debt restructuring as part of the negotiations for an IMF loan support programme.
He said the Government would avoid external debt restructuring because it would affect the country’s reputation in the external capital market and its ability to quickly return to the market – which is currently closed to Ghana.
“When you have a treasury, and you want to liquidate before the maturity, you’re going to lose some money. But this should not be a situation where anyone would act in panic and say they’re going to take their money from any financial institution,” Dr Asuming said.
“The Government is really between a rock and hard place, but it’s more likely to have a domestic debt restructuring. The Government has been borrowing a lot and our interest costs have been rising, with Treasury Bills at upwards of 30. Therefore, it’s expensive to pay the debt,” he noted.
The Senior Lecturer said the Government would have to negotiate with domestic financial institutions for either an extension to pay its debt or reduce the amount to pay back – be it the principal or interest payment.
He noted that: “Whether the debt restructuring is going to be a delay in payment or reduction, it’s going to affect their (the banks) bottom line – profit, and hamper domestic investors,” the Economist said, but cautioned against panic withdrawals.
He explained that it was important for the Government to put out information to avoid speculations and said: “The Government must communicate and assure the citizens that people are not going to lose their money.”
The Economist said once the implementation of the IMF programme starts, times would be tough in Ghana with citizens having to endure some hardship for about three years.
He said: “An IMF programme would only help us restore macroeconomic stability. We must have a complete reset and change in mentality that we can depend on foreigners to finance our development.”
“Ultimately, we must look to generate more domestic revenue and build a more financially sustainable public finance system that is rooted in a structurally more diverse economy. We must do domestic production,” he encouraged.
At a press briefing in Accra on Wednesday, Mr Ken Ofori-Atta, the Finance Minister, said the Government was yet to conclude processes for debt restructuring with the IMF.
He said, “We simply have not reached any agreement with the Fund on the parameters of any debt operations as we are in the process of completing the debt sustainability analysis.”
The Minister noted that the Government was still working with the IMF Team to update the country’s medium-term macro-fiscal framework to inform the programme’s design.
Ghana is negotiating with the IMF for an expected $3 billion loan facility for its homegrown economic programme, which is to help the country navigate through the current economic hardship and improve its fiscal balances sustainably.