Private electricity producers in Ghana are considering withdrawing from negotiations to restructure $1.6 billion in outstanding payments, posing a potential obstacle to the country’s ongoing efforts to manage its debts.
According to Elikplim Apetorgbor, CEO of Independent Power Generators Ghana, the government has failed to fulfill its commitments regarding payments, despite some producers agreeing to reduce debts and others lowering energy tariffs.
Independent power producers “were expecting that by now half of the outstanding would be settled and a payment plan prepared for the remainder,” he said in an interview. “We are compelled to re-evaluate our concessions and may be forced to demand the full settlement of arrears.” The government has paid about $400 million as at the end of December, Apetorgbor said.
According to Apetorgbor, as per the agreement with the Independent Power Producers (IPPs), the state-owned Electricity Company of Ghana was supposed to fulfill its payment obligations promptly starting from June 2023. However, it was only paying 70% of the monthly bills, and this decreased to 21% in the past three months.
A representative from the Finance Ministry did not respond immediately to requests for comment.
Ghana has been engaged in negotiations with the IPPs since the previous year to renegotiate the outstanding payments as part of its external debt restructuring efforts. This impasse could potentially impact the assessment of the country’s debt sustainability under an International Monetary Fund (IMF) program.
Following a debt crisis and a missed eurobond payment, Ghana secured an IMF bailout in 2023. It successfully completed a domestic debt restructuring last year and is currently in the process of finalizing discussions to restructure $5.4 billion in loans and $13 billion in eurobonds.
The nine-member Independent Power Producers Group (IPGG) accounts for over 60% of Ghana’s peak electricity demand of 3,618 megawatts and 80% of its thermal generation capacity.
Ghana’s bilateral creditors have transmitted a conclusive Memorandum of Understanding (MoU) regarding the country’s debt restructuring to the government.
According to sources familiar with the negotiations, JOYBUSINESS has learned about this development in the debt restructuring discussions with the bilateral creditors.
It is understood that the document was dispatched to the government on May 23, 2024, via the Official Creditor Committee.
Each of the 22 member countries of the Official Creditor Committee has individually consented to the proposed terms for restructuring Ghana’s debt.
What is next for Government of Ghana?
The government is anticipated to review the MoU and finalize the agreement with the creditors.
However, the agreement might face delays if the government raises objections to certain provisions.
Impact on Ghana’s programme with IMF and Board in June
This advancement could significantly assist the IMF board in approving Ghana’s review within the program. This would lead to the release of approximately $360 million to the country by the end of June 2024.
In April 2024, Abebe Aemro Selassie, the Director of the African Department at the IMF, disclosed that the organization has obtained the necessary financing assurances from bilateral creditors. This will facilitate the completion of Ghana’s second review.
“To be clear, they have provided financing assurances though, and that remains in effect. And so, we are not envisaging that it will be an issue for our ability to conclude the next review and provide the disbursement that is pending”, Selassie said.
Background
In January 2024, Ghana reached a “tentative agreement” with bilateral creditors as part of the G20 Common Framework debt treatment.
This enabled the country to successfully conclude the first review within the IMF program.
Furthermore, Ghana obtained $600 million along with an additional $300 million from the World Bank through the Development Policy Operation Financing.
This paved the way for the government to move on and work out the MoU between Ghana and its Official Creditor Committee on the terms for restructuring a 5-billion dollar debt.
Finance Minister, Dr Mohammed Amin Adam in April in Washington DC on the sidelines of the IMF Spring Meetings revealed that the bilateral creditors through the Official Creditor Committee have shared the draft document on Ghana’s debt restructuring with members for consideration.
“The Official Creditor Committee has shared the draft document with their members and as soon as they share the document with us and we are okay with that, then we have an agreement.”
IMF MD on Ghana’s deal with Bilateral Creditors
The Managing Director of the IMF, Kristalina Georgieva, during a visit to Ghana later this year, revealed that the country was close to signing an MoU with the bilateral creditors on the restructuring of the debt.
“Ghana is in a good place now, because it has advanced negotiations with the bilateral creditors on restructuring of debts”.
“There are very tangible progress towards signing a Memorandum of Understanding with Bilateral creditors”, she added.
The International Monetary Fund (IMF) has emphasized the importance of fiscal prudence and economic reforms for Ghana’s long-term prosperity.
Managing Director of IMF, Kristalina Georgieva, highlighted the need to build on the progress achieved under the three-year, three billion-dollar extended credit facility. She emphasized the importance of promoting inclusive growth through these measures.
“Your growth is better expected, your inflation is lower than expected, the progress in debt restructuring has been faster than expected and now the task is to cement what has been achieved and do it with the unity of this country”.
During a meeting with President Akufo-Addo, Madam Georgieva acknowledged the strength of Ghana’s economy but cautioned the government to remain vigilant to maintain the ongoing recovery.
“It is the year to bring confidence in Ghana domestically and internationally at the level it was before. It is possible because we are seeing a world slightly better, so the economic attributes are better, and the critical resource of money will go where confidence in the capacity to perform is highest. So Ghana can be in this place, as it was before. We need to stay the course, Ghana has achieved in a short time of the programme – good indicators”, she stressed.
President Akufo-Addo highlighted the positive outcomes of Ghana’s decision to seek a balance of payment support from the International Monetary Fund (IMF).
He credited the recent decline in inflation and the stability of the local currency to the IMF support programme, expressing satisfaction with the results of the bailout.
The President emphasized that despite challenging economic circumstances, the decision to seek IMF support in July 2022 had proven beneficial and contributed to a noticeable turnaround in Ghana’s economy.
“The dire circumstances in which we were at the time that we took that very difficult decision and where we are today is a very clear testimony that our decision to seek your support is a decision that was correct, and we have had some benefits from it”, the President pointed out.
The UK-based firm’s latest assessment of Ghana indicates that, barring unforeseen circumstances, the country will complete its external debt restructuring program with Eurobond holders by the specified date.
Ghana has already reached an agreement with its bilateral creditors in January and is on track to finalize the terms of restructuring with commercial creditors by the second half of 2024.
Fitch also noted that the restructuring terms with Ghana’s official creditors are unlikely to have a significant impact on the banking sector.
It highlighted that banks have minimal exposure to Eurobonds and likely have already accounted for impairments related to these bonds.
“Fitch expects Ghana to conclude its external debt restructuring in 1H24. Ghana recently agreed restructuring terms with official creditors but we do not expect this to significantly affect the banking sector. Banks have limited exposure to Eurobonds and are likely to have taken impairments for these already”.
Fitch also noted that while the loan quality of banks remains at risk due to the macroeconomic fallout from the sovereign default, the impact on the banking sector is mitigated by the relatively small size of the loans involved.
However, the agency emphasized that the capitalization of banks is highly sensitive to Ghana’s local-currency creditworthiness, as their exposure to local-currency government bonds is significant relative to their capital.
The Independent Power Generators, Ghana (IPGG), has expressed concerns regarding the recent 1.52 percent reduction in electricity tariffs by the Public Utilities Regulatory Commission (PURC).
The IPGG argues that this reduction might pose significant challenges to the restructuring of debts within the Electricity Company of Ghana (ECG), potentially hindering their ability to meet financial obligations.
During a lecture on opportunities and challenges in Ghana’s energy sector in Accra, Dr. Elikplim Kwabla Apetorgbor, the Chief Executive of the Chamber, highlighted the unsustainable operations of Independent Power Producers (IPPs) due to accumulating debts.
The lecture, organized by Think Progress Ghana in collaboration with the Ghana Institute of Management and Public Administration (GIMPA) chapter of the Graduate Students Association of Ghana (GRASAG), focused on evaluating the power sector in Ghana under the theme “Dumsor Returns: An Evaluation of the Power Sector in Ghana: Opportunities and Challenges.”
Dr. Apetorgbor raised concerns about the financial pressures faced by the sector and questioned the feasibility of debt restructuring with reduced tariffs.
He expressed doubts about the continuity of operations if a substantial tariff cut, possibly around 30% or 40%, is imposed, questioning the responsibility for settling debts.
Highlighting the nature of the debts, Dr. Apetorgbor clarified that they aren’t derived from savings or profits, making the restructuring process considerably challenging.
Dr. Kwami Adanu, a senior fellow at Think Progress Ghana, emphasized the importance of avoiding new commitments to thermal power contracts and devising strategies to raise funds for clearing increasing debts within the energy sector.
He highlighted, “It’s clear that, looking ahead in the medium to long term, our nation should explore micro grids. These platforms commonly harness renewable energy sources, and that’s where our primary attention should be directed.”
Madam Sitsope Apetorgbor, the President of GRASAG GIMPA, highlighted the crucial role of energy in national life, particularly in household management and its significant impact on women. She underscored the consequences of energy shortages on essential needs like cooking gas and protection against mosquitoes, resonating deeply within homes.
Advocating for increased female participation in energy policy and decision-making, Madam Apetorgbor suggested that their inclusion could bring more understanding and sensitivity to energy pricing concerns, especially for women managing small enterprises dependent on energy.
Pointing to specific challenges faced by women in food businesses grappling with energy-related issues, she emphasized the substantial impact of energy costs on daily life.
These perspectives shed light on the multifaceted implications of reduced tariffs on debt restructuring, household management, and the challenges faced by various sectors dependent on consistent and affordable energy sources in Ghana.
Chief Executive Officer (CEO) of the Ghana Investment Promotion Centre (GIPC), Yofi Grant, has indicated that Ghana is preparing for external debt restructuring that is projected to secure financing of around $2.5 billion in the near future.
This announcement comes as the GIPC indicated that negotiations with important partners are nearing completion and are expected to be concluded by the end of the week.
The CEO emphasized that the country’s existing fiscal gaps will be addressed through external financial measures, including an anticipated agreement of $3 billion with the International Monetary Fund (IMF) and the aforementioned debt restructuring.
“With the current fiscal gaps, we anticipate external financing for the budget through the anticipated $3 billion agreement with the IMF. Additionally, we are working on some external debt restructuring to provide financing of approximately $2.5 billion,” he said.
“We anticipate concluding negotiations with our other key partners tomorrow to further enhance our financial position,” he added.
In December 2022, government introduced the Domestic Debt Exchange Programme (DDEP), bringing it one step closer to securing a $3 billion International Monetary Fund (IMF) bailout. The programme was introduced to enable Ghana restructure its debt.
The government had initially earmarked 126.97 billion cedis ($10.67 billion) of domestic bonds for restructuring, but agreed to exempt pension funds in late December after labour unions threatened a general strike.
As of February 2023, the Finance Ministry said that around 85% of eligible bondholders had registered for the DDEP.
Zambia has successfully reached an agreement to restructure its debt of over $6 billion owed to various governments, marking a significant step towards its economic recovery, according to President Hakainde Hichilema.
While the deal with other governments is seen as a milestone, President Hichilema emphasized that further efforts are needed to reach a separate agreement with private creditors.
During the Covid-19 pandemic, Zambia became the first country to default on its debt, with a significant portion owed to China.
The debt restructuring agreement was announced during a global finance summit held in Paris, where there were also calls for a comprehensive reform of the international finance system to support developing nations and address the challenges posed by climate change.
Finance Minister, Ken Ofori-Atta, intends to protect loans received from the African Export and Import Bank (Afreximbank) from the current debt restructuring efforts.
As Ghana faces a severe economic crisis and seeks to renegotiate $20 billion in external debt to improve terms and recover from financial challenges, loans from Afreximbank are expected to be exempted.
To qualify for the next tranches of the $3 billion loan agreement with the International Monetary Fund (IMF), Ghana aims to reduce its external debt repayments by $10.5 billion over the next three years.
Despite the challenges, Ofori-Atta expressed determination to exempt Afreximbank as a lending partner, stating, “I have to find a way to do it. It’s difficult, but we will strive and find a solution.” He acknowledged Afreximbank’s invaluable support during Ghana’s most difficult times.
In July 2022, when Ghana faced limited access to global capital markets due to high yields on its international bonds, credit rating downgrades, and currency depreciation, the country secured a $750 million loan from Afreximbank.
Afreximbank argues that its loans should be exempt from debt restructuring since it is classified as a multilateral development lender. The bank refers to the treaty signed by Ghana, which prohibits subjecting its loans to moratoriums and restructuring.
The treatment of Afreximbank loans has yet to be addressed by the creditor committee, which includes the Paris Club and oversees negotiations with developed creditor nations.
Ghana’s debt restructuring involves approximately $5.4 billion owed to China and Paris Club members out of the total external debt of $20 billion as of the end of 2022. The country’s overall external debt stood at $30.5 billion.
In the coming weeks, Ghana aims to reach agreements with its bilateral creditors, as stated by Ofori-Atta during a recent press conference.
The loan obtained by Ghana from Afreximbank last year amounted to up to $750 million, with a seven-year tranche split into €100 million ($109.3 million) at an interest rate of 6.49%, including fees, and $101 million at 9.55%. Another tranche of $350 million was for a duration of 10 years with an interest rate of 9.33%, as approved by Parliament.
The government has submitted a proposal to its official creditors regarding the restructuring of its external debt.
Although the ‘working proposal’ is not legally binding, according to Reuters, it marks a significant move by the government to engage the Official Creditor Committee, which includes the Paris Club formed in May 2023, in discussions about the country’s debt restructuring program.
This submission initiates a more comprehensive negotiation process that is expected to involve the exchange of several proposals.
It highlights the government’s participation in the Common Framework process, established by the G20 in 2020, aimed at facilitating joint negotiations for sovereign debt restructuring involving newer creditor nations like China.
Ghana is hoping to cut about $10 billion out of a total of $52 billion over the next three years to successfully implement the International Monetary Fund programme.
The country’s debt to China and members of the Paris Club is estimated at $5.4 billion. As of December 2022, the total external debt stood at $28.9 billion.
It has already completed a Domestic Debt Exchange Programme in February 2023 in which about 65% of bondholders took part in the exercise.
Member of Parliament for Ningo-Prampram, Sam Nartey George, has demanded that government excludes pension funds from its latest planned debt restructuring deal.
Finance Minister Ken Ofori-Atta has formally written to the Board of Trustees of Pension Funds.
He noted that the revised proposal is expected to adequately compensate pension funds for the value of their current holdings while easing the government’s cash flow concerns in the years to come.
Reacting to this, Mr Nartey George stated that it is unacceptable that government seeks to torment Ghanaians, particularly when it has already subjected them to torture while undertaking its Domestic Debt Exchange Programme (DDEP).
Speaking on TV3 on Monday, he also accused the “wicked” government of stealing from the public purse.
“They have raped the public purse. They have stolen the purse, people lost money in financial clean up, debt exchange and now you are going for pensions funds and you say we shouldn’t talk,” he said.
“This is a wicked, clueless and incompetent government,” the Ningo-Prampram MP added.
The proposed offer entails exchanging current Treasury Bond, ESLA Bond, and Daakye Bond holdings for a selection of the currently outstanding new bonds. These bonds, issued in February 2023, mature in 2027 and 2028, respectively, and feature an average coupon of 8.4% with a ratio of 1.15x, thus entailing an increase in patrimonial value.
The proposal also includes an additional cash payment of 10% (strip coupon). The stream of coupons to be received as part of this proposal will, therefore, be 21% compared to the current 18.5% of the outstanding old bonds.
After numerous deliberations and negotiations with the International Monetary Fund (IMF) for a $3 billion bailout, Ghana is set to secure the aid from the Fund by close of May 2023.
This is according to a Graphic Business report citing sources familiar with the matter.
The new development, however is as a result of government’s ability to take advantage of the goodwill of the Fund and key bilateral creditors to fast track the debt restructuring process.
Reports are that, the financial assurance from the bilateral creditors, which is the last hurdle for Ghana, is due later this month [April], to pave the way for the request to be submitted to the IMF Executive Board for consideration and approval in May this year.
“Once the request goes before the board, I am pretty sure it will not encounter any challenges and so a deal in early or mid-May is possible,” one source said in Washington D.C., where global leaders on the economy have converged for the IMF/World Bank Spring Meetings.
This new revelation cements assurance from the Managing Director of the IMF, Kristalina Georgieva, who had earlier expressed optimism, that the Fund’s Executive Board would soon grant final approval to Ghana’s bailout request.
According to Georgieva, her optimism stemmed from the swelling goodwill that the country was getting from the international community, including its creditors.
She added that, her outfit was pushing the bilateral creditors to quickly provide the financial assurance needed for the board to approve the deal.
“To tell you the truth, I am optimistic that we are going to move swiftly and so stay positive,” she said.
Ghana secured staff-level agreement (SLA) for the $3 billion request in December 2022 but efforts to move pass the final lap have dragged as bilateral creditors haggle over the terms for an external debt restructuring exercise.
The Minority in Parliament has indicated that it will not accept government’s proposed debt restructuring programme as announced.
Minority leader, Haruna Iddrisu, relayed the Minority’s position during a press conference held today, Monday, December 5, 2022.
Below is a press statement from the Minority
Good morning, ladies and gentlemen of the press.
We welcome you all to this press encounter, prompted by some very disturbing and urgent developments on the economy. Our economy is indeed in crisis.
As is now trite knowledge, the Ghanaian economy has been terribly mismanaged in the last five to six years by the Akufo-Addo/Bawumia administration leading to our request for a 17th IMF program to renew confidence and policy credibility on our failing economy despite haughty initial denials.
The severely ailing economy has been characterized by unsustainable debt, very high inflation, unprecedented and disastrous depreciation of the cedi, high budget deficits and unprecedented credit rating downgrades.
The economic situation is so bad that we are currently ranked side by side with Sri Lanka, which is considered the worst economy in the world and has defaulted on its debt.
Our public debt hovers above the GHS 500 billion mark with a corresponding debt to GDP ratio of about 105% having inherited a total public debt of GHC120billion in 2017.
Inflation for the month of October is 40.4% and is destined to rise for the month of November. The cedi has lost 54% of its value in the last ten months alone.
The combined effect of these grim macro-economic indices has been devastation and disappointment for Ghanaians and households.
DEBT RESTRUCTURING
The Minister of Finance Hon. Ken Ofori-Atta has just this morning announced “Major Policy” blue prints on government’s debt restructuring on domestic debt restructuring promising to announce for extension for debt restructuring in due course.
To put our unsustainable debt on the right path, we were told categorically by the President of the nation, Nana Addo Danquah Akufo- Addo “THERE WILL NO BE HAIRCUT”, at least we now know there is.
The form and structure of this debt restructuring is unacceptable to the NDC Minority, we simply cannot agree to this as it has dire consequences on the financial sector, on pension funds and on jobs. We are all at risk.
According to Ken Ofori-Atta, Ghana’s DEBT is UNSUSTAINABLE and we cannot SERVICE it FULLY if we do not restructure some GHC 137 billion of our Domestic debt.
Ghana is the first country in Africa to announce domestic debt restructuring or as they put it domestic debt exchange!
We have OFFICIALLY DEFAULTED in the repayment of the terms of our existing Domestic debt.
Ghana joins Greece and Jamaica in the last 10years.
The NDC MINORITY has been consistent on this matter, we cautioned and warned the government about engaging in reckless borrowing and expending it wastefully! How come contours of this exchange program was not announced in Parliament during the 2023 budget presented on 24th November 2022. Will it require legislation? How come that a major policy step of this dimension was not part of his presentation to Parliament?
While we agree that Government is still negotiating the potential and inevitable IMF Program, it is necessary that conclusive Government plans be brought to the House for approval.
This is consistent with the Constitution:
(a) The terms and conditions of an IMF Program support constitute a loan and finance agreement under the Constitution;
(b) As implied, any other debt restructuring exercise constitutes a variation of the terms and conditions of past loans authorized by the House;
(c) All loans to support the Budget and Appropriation Act approved by the House, to finance Projects and Programs; and
(d) The House needs to know the socio-economic impact of any loan and program agreements, to the extent that these are not appropriately and specifically espoused in the economic policy section of the Budget.
It is now obvious that BoG is heavily financing the Budget, in open defiance of existing laws and policy approvals by the House.
I wish to reiterate my call on the Governor to desist from flouting the laws and for him to appear before the House to explain the form and implications of the Central Banks monetary and, not least, its aggressive and defiant fiscal stance.
The government is simply breaking contracts according to the plans revealed by the Finance Minister this morning. This development will deter investors, without first informing and consulting them. The best way to manage a crisis is to anticipate it, to reduce its impact, or at best to prevent it from happening.
We have been thrust into the worst cost of living and cost of doing business crisis in recent memory and horrendous suffering and pain have been the portion of Ghanaians.
And to be clear, the suffering we are all going through is a direct consequence of recklessness and mismanagement on the part of this government and their appetite for excessive borrowing
It was the expectation of many that the crisis we face would elicit the most urgent and far-reaching steps by government to ensure a reversal of our dismal fortunes.
We had hoped that the opportunity of the presentation of the 2023 budget would seized to show real commitment to proposing and implementing economic policies and measures that will mitigate the suffering.
Instead, we have observed with dismay, a shocking lack of urgency and commitment to tackling the crisis.
To begin with, the Budget was completely devoid of any convincing plan to get us out of the economic mess and turmoil.
The same “business as usual” posture that landed us here in the first place is on display. The Budget to offer comfort to anyone that we will be out of the woods in the short to medium term provided no evidence.
In addition to the lack of convincing proposals, we have been utterly shocked at the show of disrespect and disinterest in the Budget process by the very government that presented it.
We have been left dumbfounded as Cabinet Ministers who double as MPs and who form part of the government that has superintended over the greatest economic crisis of our time abandoned the important Budget debate and approval process only to be seen in Qatar making merry and taking selfies during the world cup.
Never in our history has a government exhibited such poor judgement and they have by this singular act placed beyond any doubt, that they have no respect for the people of Ghana, or the mandate bestowed on them to govern.
We are particularly stunned that President Akufo-Addo allowed this to happen.
EXPENDITURE CUTS
We expect major expenditure cuts to achieve fiscal consolidation. The size of Government must be reduced drastically. We demand responsible spending.
We will not accept the outrageous GHC1.4billion allocation as contingency vote contained at page 209 of the 2023 Budget statement. We note that, this allocation is an additional GHC400million compared with last year’s allocation of GHC993million. This cannot be happening in a period of austerity.
We are also opposed to an allocation of GHS10 million for what has been strangely described as Defense Advisory Services. We also strongly denounce plans to increase the staff strength at the Office of Government Machinery by a staggering 1,570 at Page 230 of the 2023 Budget. This will increase total staff strength at the OGM to 3,681. This is unconscionable at a time Government has announced a total freeze in public sector jobs.
If ever there was proof that this government has lost its way and shown itself unworthy of the trust of the people of Ghana, this would be it.
We in the Minority wish to make it very clear, that if we do not see significant improvement in the attitude of the Majority side and sector Ministers do not turn up to lead the Budget process on their sectors, we will withdraw from the Budget process.
We will no longer countenance this embarrassing gross dereliction of duty to the people of Ghana.
On the Budget itself, we note that far from offering hope and assurance of a quick turn-around in our gloomy economic situation, it is packed with measures that will exacerbate the suffering we are already enduring.
We also note that no lesson has been learnt on how reckless and unrestrained expenditure have undermined the Ghanaian economy.
The 2023 Budget continues on the same spending trajectory that has led to our collective economic doom.
Instead of cutting down on non-essential expenditure, we have rather seen an increase with additional spending of up to GHS 82 billion. Some of the envisaged expenditure items are entirely wasteful and needless.
NATIONAL CATHEDRAL 80 MILLION GHANA CEDIS
Despite huge public outcry and in defiance of prudence, another GHS 80 million has been earmarked for the National Cathedral, which does not constitute a spending priority at this time.
This will bring the total amount spent on the project to about GHS 420 million, the total amount of tax payer funds so far spent. The estimated total cost of the project is around 400million dollars. Is this project a national priority?
For a government that is unable to print textbooks for basic school pupils several years after introducing new curricular unable to pay NABCO arrears and that is indebted to contractors and suppliers to the tune of over GHS 40 billion, this is most imprudent and unacceptable.
2.5 % INCREASE IN VAT
Whilst whittling away the little we have as a country in this intransigent manner, the Akufo-Addo/Bawumia government has decided to pile more hardships on the people of Ghana through the introduction of more taxes in the 2023 Budget presented to Parliament.
The most punitive among these taxes is the addition of 2.5% to the VAT rate bringing it to a cumulative 21.5% (made up of 2.5% GETFund, 2.5% National Health Insurance, 1% Covid Levy and 15% VAT all levied under the terms of Value Added Act, Act 870) the highest in Africa. What moral right does President Akufo-Addo have to increase VAT by 2.5% when he led the “KUMI PREKO” demonstration in 1995 resulting in the loss of five lives.
As sure as night follows day, this will worsen the hardship faced by Ghanaians, as the prices of almost all items will increase instantaneously once this tax comes into effect.
In addition to the increase in VAT, we have detected twenty-two additional tax and revenue measures that will make life even more difficult and unbearable for every Ghanaian.
As Social Democrats, we of the NDC stock have never been against taxation per se, but we are simply unable to agree with the steep increase and timing of the introduction of these tax measures.
At a time when people are facing the worst economic crisis and hardships in their lifetime, the last thing that is desired is further taxation.
The high rate of inflation has already eroded the disposable incomes of Ghanaians and we can no longer bear to give more to a government that is determined to waste our resources on extravagant living
E-LEVY
Our position on E-levy remains unchanged. It is a setback to this cashless economy. We are also astonished to learn in the Budget that the GHS 100 threshold for e-levy deductions has been abolished. How come that the threshold is being abolished. How do we protect the vulnerable poor? At least a 300gh threshold with a reduction in the principal from 1.7 to 1%. You recall my suggestion of a 1% levy at a threshold of 500, which was out-rightly rejected by Government at the negotiations. This was part of the discussion when we rejected “AGYAPA”.
UNPRECEDENTED INFLATION AND DEPRECIATION OF THE CEDI
Again, inflation, which has ballooned from 13% in January to over 40% in October, has diminished the value of GHS 100 and therefore the exemption threshold for e-levy should be increased to GHS 200 and not removed.
This a clear example of insensitivity on the part of the Akufo-Addo/Bawumia government.
We in the NDC have already stated our intention to abolish the e-levy when we come back to power but before then, we wish to serve notice that we will fiercely resist the removal of the GHS 100 threshold.
Inflation has also wreaked havoc on personal income taxpayers and therefore removes any justification for the introduction of the additional band of 35% as announced in the 2023 budget.
Ladies and gentlemen of the press,
Yesterday, Finance Minister, Ken Ofori Atta announced the commencement of a debt-restructuring program, which he cynically dubbed a “debt exchange program”.
The debt-restructuring program launched today, Monday, 5th December 2022 has the following details:
For Domestic Bond holders, there will be a drastic slash in the agreed interests on their existing bonds which have been replaced by four new instruments maturing in 2027,2029,2032 and 2037 as follows,
In 2023, there will be 0% interest paid them on their bonds
In 2024, only 5% interest will be paid
In 2025, 10% interest will be paid until maturity.
This means that for those who have invested their lifetime savings in government bonds and depend on the interests for their livelihood and regular upkeep, you will suffer a drastic reduction in the rate of interest, which will significantly diminish your source of livelihoods.
A few weeks ago, after coming under a barrage of public criticism for failing to show leadership and failing to address the nation in the wake of the harrowing hardships and economic crisis. President Akufo-Addo took to the airwaves and categorically denied every credible information we in the Minority caucus in Parliament, had put out about an impending drastic debt restructuring and very painful haircut for investors in government bonds and other creditors.
The President stated clearly that there would be “NO HAIRCUT”.
The measures referred to above show steep cuts in interest rates and this clearly exposes the falsehood and hollowness of the President’s claims in the said address.
Beyond a terse claim that principals of domestic bondholders would not suffer haircuts, the finance minister failed to provide details of what would happen to the principals.
We have become aware of the emergence of details of a briefing given by the Finance Minister and officials of the Finance Ministry to stakeholders in the Banking Sector.
It was clearly disclosed at the briefing that bondholders who look forward to having their principals paid upon the maturity of their bonds, are also in for a very rough ride as the Akufo-Addo/Bawumia government has decided not to pay in full when the bonds reach maturity.
The principal payments are to be done according to the under listed formula.
In 2027, which is five years from now, only 17% of the principal will be paid.
In 2029, seven years from now, only 17% will be paid
In 2032, ten years from now, 25% will be paid and
In 2037, fifteen years from now, 41% will be paid.
This arrangement is set to derail and disrupt the plans of bondholders who have planned their lives and expenditure around the expected timely and full payment of their principals in consonance with the terms of purchase of the original bonds.
It will no doubt lead to hardships for bondholders, not to mention the breach of the original instruments.
Though the Finance Minister stated that details of treatment of external bonds are yet to be disclosed, it is the worst kept secret in Ghana that in the case of external bondholders, the Akufo-Addo/Bawumia government has decided to cut a staggering 30% off both the interest and principal.
In addition, external bondholders will have the maturity dates of their bonds extended by twenty whole years.
We need to stress that this crude haircut will not only affect foreigners or non-Ghanaians as erroneously believed because there is a significant number of Ghanaians who hold external bonds through various Ghanaian financial institutions who made these investments on their behalf.
These harsh cuts in the interests and principals of bondholders stem from a self-inflicted economic disaster.
Incontrovertible information reaching us indicates that this decision has been reached after a Debt Sustainability Analysis (DSA) carried out under the aegis of the IMF and World Bank showed that we in the Minority have always been right that our public debt is no longer sustainable.
We can also state with absolute certainty, that after years of denial and falsification of our debt numbers through the exclusion of debts owed by SoES, contingent liabilities, and debts on the books of dodgy Special Purpose Vehicles, the Akufo-Addo government has finally capitulated and accepted the reality that we owe far more than they have been admitting.
Contrary to the Finance Minister’s claim in the 2023 budget presented barely a week ago, that our debt to GDP ratio was 76%, government has now admitted that it is actually an unthinkable 105%.
This puts our actual public debt well above GHS 500 billion.
With such astronomical debt and how unsustainable it has become, Government is compelled as a precondition to securing an IMF program to reduce the debt and bring the debt to GDP ratio to 55% over a five-year period.
In the circumstance, the Akufo-Addo/Bawumia government has decided to implement these cut-throat debt restructuring measures that will see it failing to pay government bond holders and creditors up to as much as GHS 200 billion.
These haircuts are a complete disaster for those affected and represents an economic atrocity on an unparalleled scale against the people of Ghana.
All this was very avoidable had the Akufo-Addo/Bawumia government not been so hopeless, incompetent, arrogant and intransigent.
They had absolutely no business collapsing our economy and inflicting such a calamity on our people given all the resources and goodwill placed at their disposal.
We are appalled that this government believes that only the people of Ghana, who had no hand in the criminal mismanagement of the economy that has brought us to this sad juncture, should bear the pain of the supposed corrective measures.
We observe that there is no corresponding level of sacrifice on the part of the incompetent bunch whose puerile mismanagement has resulted in this national tragedy.
They continue to be arrogant and unrepentant and are unwilling to accept responsibility for mismanaging the economy.
Even as it is abundantly clear that the managers of the economy like Alhaji Bawumia, Ken Ofori-Atta and the entire membership of the Economic Management Team have lost credibility, proven to be incompetent and cannot be relied upon to salvage the situation, they continue to cling on and are taking more damaging decisions that continue to bring suffering to our people.
President Akufo-Addo is also refusing to show leadership by outlining more credible and deeper cost cutting measures that will signal a departure from the old ways.
He has refused to reduce the size of what has become the largest and most inefficient government in our history.
Government is required to bring both the budget estimates and debt-restructuring plan to parliament for approval.
We wish at this juncture, to state emphatically, that we in the NDC Minority Caucus in Parliament will vigorously oppose and refuse to entertain both the budget estimates and any bill on debt restructuring until the follow conditions are met.
The resignation of the entire Economic Management Team and in particular Alhaji Bawumia from his position as Chair of that obviously moribund body.
The immediate resignation or dismissal of the Finance Minister, Ken Ofori-Atta
Immediate reduction in the number of Ministers and political appointees at the Office of the President by half.
Removal of all non-essential expenditure in the 2023 budget including the GHS 80 million allocated to the National Cathedral
Reinstatement of the GHS 100 exemption threshold for e-levy payment
We are aware that the Akufo-Addo/Bawumia government have become desperate and is compelled after reckless mismanagement of the economy to achieve fiscal consolidation.
Fiscal consolidation also involves deep expenditure cuts and prudence in the use of scarce resources.
The people of Ghana alone cannot be called upon to withstand the worst of the economic mismanagement and attendant hardships while those responsible for the crisis continue as if nothing happened or they did nothing.
We wish to assure the good people of Ghana that we will continue to fight to preserve their interests and prevent the hopeless Akufo-Addo/Bawumia government from doing more damage to the economy and bringing more pain and hardships upon us.
The Minority in Parliament says it will not accept government’s proposed debt restructuring programme as announced.
According to the Caucus, the policy is unacceptable and cannot be allowed to proceed.
The Minority Leader, Haruna Iddrisu, said this at a press conference on Monday, December 5.
He said his side will use every legitimate means to oppose the move.
“Let me state without any fear of contradiction that the form and structure of the debt restructuring announced by Finance Minister Ken Ofori-Atta this morning are unacceptable to us and we simply will not accept it.”
The Tamale South lawmaker also questioned why the 2023 budget was silent on this policy.
“I want to ask how come this debt restructuring was not included in the 2023 budget,” the outspoken politician added.
Finance Minister, Ken Ofori-Atta on Sunday, December 4, announced the government’s domestic debt exchange programme.
These measures include some exemptions and external debt restructuring parameters that will be implemented.
Per his release, treasury bills and individual bondholders will not be affected by this exercise.
However, domestic bondholders will be compelled to exchange their instruments for new ones.
“Existing domestic bonds as of December 1, 2022, will be exchanged for a set of four new bonds maturing in 2017, 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% in 2025 until maturity.
“Coupon payments will be semi-annual,” the Minister said.
Meanwhile, Mr Ken Ofori-Atta assured us that there will be no haircuts on the principal of bonds.
As Ghana considers some debt restructuring, the Information Minister, Kojo Oppong-Nkrumah, has clarified that the president’s assurances of no haircuts with respect to money invested in bonds cover just the principals for the time being.
“My understanding is that no principals will be touched. No principals will have a haircut,” Mr. Nkrumah said on the Citi Breakfast Show.
The minister however added that “the debt sustainability strategy is yet to be announced in full.”
“When they are done with the rest of the strategy, and they come out and do a full announcement, we will have clarity on the form that the debt restructuring will take,” he said.
The concerns over debt restructuring have accompanied the government’s negotiations with the International Monetary Fund (IMF) for a $3 billion bailout.
As to the fate of interest expected on the principals, Mr. Nkrumah said, “I think we should give them time to come out and announce the full details of the debt sustainability strategy.”
The minister further said the president’s assurances, which came via an address on Ghana’s economic crisis, were in response to rumours about haircuts on principals.
Ghana’s talks with the IMF mission are expected to resume in the coming weeks as the government works to manage its almost GHS 400 million debt.
Moving forward, to address the debt situation, the president said the government plans to reduce the total public debt to GDP ratio to about 55 in present value terms by 2028, with the servicing of external debt pegged at not more than 18 percent of annual revenue also by 2028.
It is expected that the government will have to restructure the debt to make it more sustainable in order to qualify for the $3 billion support from the IMF.
The Finance Ministry recently said it is committed to reaching an agreement with the IMF as soon as possible.
The government is optimistic that it will have a deal in place before the 2023 budget is read next month.
The Forum for Public Sector Associations and Unions have asked the Government not to apply a “haircut” to Tier 2 Pension Funds as part of a “probable” debt restructuring programme.
The Forum said it had taken note of media reports suggesting that about 94 per cent of Tier 2 Pension contributions placed in Government securities might be affected by the said debt restructuring agenda.
At a press conference in Accra today, Thursday, October 20, 2022, Mr Isaac Bampoe Addo, Chairman of the Forum, said any such decision on the Tier 2 Pensions would contravene provisions of the National Pensions Act, 2008.
“If the Government was to pursue the restructuring of Ghana’s debt by touching pension funds, placed in government securities, it would be tantamount to the deceit of benefits envisaged under the Three Tier Pensions Scheme,” he said.
Mr Addo said following the media reports, the Forum officially wrote to the National Pensions Regulatory Authority (NPRA) for clarification.
He said the NPRA, in its response to the Forum, assured that: “there’s no such policy or decision at the moment to restructure Ghana’s debt and as regards the 94 per cent of Tier 2 pension contributions placed in government securities.”
Mr Addo said the decision to place a larger proportion of Tier-2 funds into Government Securities, was due to the fact Government paid all the Temporary Pension Fund Account (TPFA) at the Bank of Ghana in government securities.
He said the Occupational Pension Schemes had efficiently grown the Tier-2 Pensions Funds that would allow the schemes to pay “better lump sum” to its contributors on retirement.
“Thus, if the government would want to touch these funds, that are privately managed, it would be tantamount to the Government reaping where it has not sown,” he said.
The Forum is made up of nine public sector Unions and Associations, including the Civil and Local Government Staff Association, the Ghana National Association of Teachers; the Ghana Medical Association; the Ghana Registered Nurses’ and Midwives’ Association, and the National Association of Graduate Teachers (NAGRAT).
The rest are the Judicial Service Staff Association of Ghana, Coalition of Concerned Teachers Ghana, and the Ghana Hospitals Pharmacists Association.
The Forum constitutes about 70 per cent of the public sector payroll.
Ghana’s Pension Scheme is in three tiers. The First Tier is the Basic National Social Security Scheme for all workers in Ghana. It is a defined benefit scheme and mandatory for workers to have 13.5 per cent contributions made on their behalf, and managed by SSNIT.
The Second Tier is a defined contributory Occupational Pension Scheme mandatory for workers with 5 per cent contribution made on behalf of members. The contribution is managed privately by approved Trustees.
The Third Tier which includes all Provident Funds and all other Pension Funds outside Tiers I and II is a voluntary scheme.
Section 102 of the Pensions Act states: “the accrued benefits of a member in an occupational pension scheme shall not be attached in execution of a judgment debt or be used as a charge, pledge, lien or be transferred, assigned or alienated by or on behalf of the member.”
IMANI-Africasays that the government must make difficult decisions on the impending restructuring of its public debt.
Leadership, in the opinion of the policy think tank, would be essential in fostering confidence along this route.
“Like all burdens, this one too will become lighter if it is shared collectively by those it affects, the people of Ghana. No time is better than now for the government to show its mettle in dispelling mounting skepticism and cynicism about its commitment and capability to get the debt crisis response right.
“Failure will have consequences too dire to contemplate,” IMANI said in its preliminary findings from an analysis of a potential sovereign debt restructuring in Ghana.
Finance Minister Ken Ofori-Atta has indicated the government is poised to tie down an IMF-supported arrangement before November ahead of the 2023 budget.
Mr Ofori Atta told reporters in the capital, Accra, on Wednesday that the 2023 budget will be presented in November, leaving the government with less than two months to wrap up an agreement with the Washington-based lender.
“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,” he noted.
Ghana will start to engage with local and foreign investors to help fast-track negotiations with the IMF for as much as $3 billion to support its economic program.
The governmentwill announce the names of five members of a committee put together to lead talks for national consensus building in the coming days, the minister said.
Meanwhile, the government is racing against time as key aspects of the IMF program are billed to reflect in next year’s budget.
A financial analyst, Jerome Kuseh, has urged the government to treat local investors fairly should it decide to restructure its external and domestic debt.
According to him, there is a need for the government to restructure external debts, as doing so would aid domestic investors to avoid losses in their businesses. “Now let’s say you are going to give them [local investors] a haircut, but the foreign investors who only decided to only buy your Eurobonds, they are not going to be subjected to a haircut. Where is the fairness in that situation?” “The domestic market stayed with you and kept oversubscribing, even to treasury bills. Now, these investors are going to be punished,” he is quoted by citibusinessnews.com.
The need for debt restructuring has recently arisen due to Ghana’s debt stock growing unsustainable as a result of the depreciation of the Ghana Cedi and the difficulty in obtaining loans as a consequence of downgrades by rating agencies.
Debt restructuring, a strategy adopted by business entities or individuals, happens when a debtor in financial difficulty receives a concession from a
creditor in line with a consensual agreement or a court order.
The procedure entails haggling over a lower interest rate and extending the loan’s repayment time. This approach can help debtors who are struggling to pay their bills due to numerous factors that may have posed a challenge for them to do so under the terms and conditions that have been agreed on.
The government of Ghana is expected to participate in some debt restructuring procedures as part of the country’s debt sustainability agreement with the IMF.
According to the IMF, the initiative will strengthen the legitimacy of government policies, re-establish trust in the central bank’s ability to control inflation, and build up foreign exchange reserves to sustain the local currency against adverse circumstances. However, financial experts argue that a restructuring of the country’s debt may cause a number of banks to go bankrupt suddenly.
In the meantime, former Deputy Minister of Finance, Cassiel Ato Forson, has asserted that the country’s debt is unmanageable as “public debt to GDP is now about 100 percent” therefore, debt restructuring is currently the only option for the country.
