Finance expert, Joe Jackson has challenged the government’s reported figures concerning the depreciation of the cedi against major trading currencies in 2023.
During a press briefing on May 24, 2024, Finance Minister Dr. Mohammed Amin Adam presented an update on the economy, claiming that the cedi’s depreciation against the US dollar had reduced significantly from 54.2% at the end of November 2022 to 27.8% by December 2023.
He further expressed optimism that the cedi would continue to strengthen in the medium-term following the completion of the Domestic Debt Exchange Programme (DDEP).
“But for recent pressures we are seeing on exchange rate movements, the exchange rate has been largely stabilized with the depreciation of the Cedi against the US Dollar halving from 54.2% at the end of November 2022 to 27.8% at the end of December 2023.
“The Cedi’s stability has continued into 2024, with a cumulative depreciation of 14.2% as of May 20, 2024, compared to 20.7% recorded in the same period in 2023. We expect the Cedi’s stability to improve in the medium term as we complete debt restructuring, make more progress on fiscal consolidation, and improve our reserves over the medium term,” the finance minister stated.
However, Jackson contested these figures, stating that they do not align with data available online, particularly with exchange rate figures provided by the Bank of Ghana.
Referring to the minister’s assertions regarding the cedi’s future stability, Jackson emphasized the importance of this stability translating into tangible benefits for the average Ghanaian.
“The minister may have gotten his figures a little wrong. I don’t think that in May 2023 it was that kind of figure.
“If you go online and you look at the Bank of Ghana rate and other quoted rates; anybody can go to www.xe.com, put the US dollar to cedi rate, you will see that today’s rate is quoted as 14.55 coming from the central bank,” the finance expert said.
He continued, “On May 24, 2024, the quoted rate there is 10.75. Today, the quoted rate is 14.55, the depreciation is around 24%.”
“…As for the cedis being strong, he can’t say that. We feel it in our pockets, we feel it when we buy clothes… you feel it everywhere,” Jackson argued.
The Health Minister-designate, Dr. Bernard Okoe-Boye, has linked the delays in completing certain health facilities, notably the Tema General Hospital, to the renegotiation of the Domestic Debt Exchange Programme (DDEP) with external creditors.
The construction of the 400-bed Tema Regional Hospital, initiated with a sod-cutting ceremony in 2020 by President Akufo-Addo, aimed to replace the existing Tema General Hospital at a cost of €92.7 Million.
During an inspection tour of the facility, Dr. Okoe-Boye affirmed the government’s dedication to finishing the project despite the setbacks.
“But for the debt exchange programmes, all these are not fathomed or imaginary projects. These are projects that have been worked on in terms of contracting, facility arrangements and even works have begun on some of the sites. Like you mentioned, at Dormaa, we are going there. We don’t want to know of projects from a distance, we want you to be part of the journey.”
“The Ministry of Finance is working hard to complete this debt exchange programme so that creditors can start disbursement for projects like this to be reactivated.”
“…We are going to work hard to make sure that we resolve these challenges.”
The Governor of the Bank of Ghana (BoG), has indicated that discussions took place with the recently concluded IMF Mission team concerning the ramifications of the Domestic Debt Exchange Programme (DDEP) and its impact on the central bank’s financial position.
The central bank’s annual financial statements for 2022 revealed a total loss of approximately GH¢60.8 billion, resulting in a negative equity of GH¢55.12 billion compared to a positive equity of GH¢5.7 billion in the previous year. These losses have been partially attributed to the government’s DDEP, which significantly affected the balance sheet during the period.
To tackle this issue, Dr. Ernest Addison disclosed that there was a mutual understanding reached regarding the early recapitalization of the Bank of Ghana, with plans to sign a Memorandum of Understanding (MoU) with the Ministry of Finance for this purpose.
Speaking at a joint press conference involving the IMF, Finance Ministry, and BoG held in Accra on April 13, 2024, Dr. Addison announced that Ghana had successfully reached a staff-level agreement with the IMF for the second review of the 17th bailout program.
Furthermore, Dr. Addison mentioned that discussions had progressed regarding the government’s external debt restructuring program, with ongoing negotiations involving commercial creditors, bondholders, and bilateral creditors.
Government has announced the reopening of the Domestic Debt Exchange Programme, primarily targeting investors who missed the opportunity to participate in February. This reopening also extends to holders of E.S.L.A. Plc and Daakye Trust bonds.
In a statement issued by the Finance Ministry, the government acknowledged that some bondholders were unable to participate in the previous offer due to timing constraints and aims to rectify this with the reopening.
The government believes that participating in this Invitation will offer value to bondholders. The new bonds, including new tranches, are expected to be more liquid than the existing bonds, given the larger investment base and benchmark size.
Additionally, the government may, under certain circumstances, prioritize payments on the new bonds over the existing ones, enhancing cash flow and debt sustainability.
Summary of the Invitation:
The Invitation is open to registered holders of eligible bonds, excluding Pension Funds.
The terms of the Invitation mirror those of the February 2023 Exchange, with some adjusted dates.
The government offers Accrued Interest Payable on eligible bonds tendered and accepted.
Bondholders will receive principal amounts of New Tranches depending on their Holder Category.
Interest on the New Tranches will be paid in cash, with some exceptions.
Maturing Eligible Bonds will not receive final interest or principal payments.
The Expiration Date for submitting offers is 22nd September 2023, with the possibility of extensions.
The Reopening Settlement Date is 29th September 2023, subject to extensions.
Morrow Sodali Limited serves as the Information and Coordination Agent, while Lazard Frères acts as the Financial Advisor for the government regarding this Invitation.
Eligible holders or custodians may obtain the Exchange Memorandum from the Invitation Website. Detailed procedures for participating in the Invitation have been outlined in the Exchange Memorandum.
For further information and assistance, bondholders can contact the Central Securities Depositary (GH) Limited (CSD) or the Information and Coordination Agent.
This move by the Ghanaian government aims to address the concerns of bondholders who previously missed out on participating in the programme, providing them with another opportunity to exchange their bonds for New Tranches.
Below is the full statement
PRESS RELEASE
FOR: IMMEDIATE RELEASE
THE GOVERNMENT ANNOUNCES THE REOPENING of THE Domestic Debt Exchange TO GIVE HOLDERS WHO could NOT PARTICIPATE AN opportunity TO TENDER
ACCRA, Wednesday, 13th September 2023 … The Government announced today that it is reopening its invitation to the exchange that settled in February 2023 (the “February 2023 Exchange”) and is therefore once again inviting holders of the domestic notes and bonds of the Republic of Ghana, E.S.L.A. Plc and Daakye Trust Plc that are specified in Appendix A attached hereto (the “Eligible Bonds”) to tender their holdings of the Eligible Bonds in exchange for a package of New Tranches (as defined below) of the same new bonds that were issued by the Government (the “New Bonds”) as part of the February 2023 Exchange (such invitation hereinafter referred to as the “Invitation”). The terms and conditions of the Invitation are described in the exchange memorandum dated today (the “Exchange Memorandum“) and available at https://projects.morrowsodali.com/ghanadde and https://mofep.gov.gh/news-and-events/debt-operations (the “Invitation Websites”).
The terms of this Invitation are identical to the terms of the February 2023 Exchange except that the relevant dates for this reopening exercise have changed as indicated below and in the Exchange Memorandum, and this reopening contemplates a payment of the first coupon on the new instruments as if tendered in the February 2023 Exchange to tendering bondholders (except to those tendering Eligible Holders who received coupon payments on their Eligible Bonds after 21st February 2023, who instead will receive a cash payment equal to the interest accrued on their Eligible Bonds from and including such last coupon payment date to but excluding 22nd August 2023).
We are aware that a number of holders of Eligible Bonds did not participate in the February 2023 Exchange on time and, as a result, were left with their holdings of the Eligible Bonds. Mindful of this development, we are proceeding with an administrative reopening of the February 2023 Exchange.
We believe that there is value for bondholders to participate in this Invitation. Indeed, the New Bonds (which will include the New Tranches) are expected to be more liquid than the Eligible Bonds, considering the larger investment base and the benchmark size of the New Bonds. In addition, the Government could under certain circumstances prioritise payments on the New Bonds over payment on the Eligible Bonds. Participation in this administrative reopening would also further improve the cashflow position of the Government and further support debt sustainability.
Summary of the Invitation
The Invitation is available only to registered holders of Eligible Bonds that are not Pension Funds (as defined below) (“Eligible Holders”), except that if you have tendered Eligible Bonds in either of the two prior GHS-denominated invitations to exchange by the Government in 2023 (i.e., the February 2023 Exchange or in August 2023 with respect to Pension Funds (the “Pension Fund Alternative Offer”, and together with the February 2023 Exchange, the “Prior Domestic Cedi Exchanges”)) you are not eligible to tender in this Invitation and are no longer an Eligible Holder. The purpose of this Invitation is to provide those holders who did not participate in either of the Prior Domestic Cedi Exchanges with the opportunity to exchange their Eligible Bonds for New Tranches.
As mentioned above, except for dates specific to this reopening exercise and the payment of interest that has accrued since the February 2023 Exchange, the terms of this Invitation are identical to the terms of the February 2023 Exchange. Notwithstanding this, for convenience, we are restating the main terms of the Invitation in the following paragraphs:
Upon tendering Eligible Bonds, the exchange consideration Eligible Holders will receive (including which New Tranches and their allocation per amount of principal amount tendered) will depend upon the category applicable to such Eligible Holder (each such category a “Holder Category”). “Category A Holders” consist of Eligible Holders that are Collective Investment Schemes (as defined below) or natural persons below the age of 59 years old as of 1st January 2023. “Category B Holders” consist of Eligible Holders that are natural persons 59 years old or older as of 1st January 2023. “General Category Holders” consist of Eligible Holders that are not Category A Holders or Category B Holders, which may include corporate entities and financial institutions not contained within the definition of Collective Investment Schemes, but may not include Pension Funds. For purposes of the Invitation, (i) a “natural person” is a natural person who, in respect of the Eligible Bonds being tendered by such person, is registered as such (or with an equivalent term) in the records of the CSD (as defined below), (ii) “Pension Fund” means the pension contributions and investment funds of a mandatory and/or voluntary contributory pension scheme duly recognised and validly operating under the National Pensions Act, 2008 (Act 766) as amended, and (iii) “Collective Investment Scheme” means a mutual fund, unit trust scheme or any other entity validly licensed by the Ghana Securities and Exchange Commission (SEC) to operate as a collective investment scheme.
The Government is offering Eligible Holders accrued and unpaid interest (“Accrued Interest Payable”) on their Eligible Bonds validly tendered and accepted by the Government, calculated from and including the last interest payment date up to, but excluding, 21st February 2023 (the “Original Settlement Date”), which amount will be paid to such Eligible Holders in the form of capitalized interest (rounded down to the nearest GHS1.00) added to the principal amount of the New Tranches and distributed across the New Tranches in the same proportion as the Exchange Consideration Ratios (as defined below).
Eligible Holders whose validly submitted Offers are accepted by the Government will receive on the Reopening Settlement Date (as defined below) principal amounts of New Tranches which will be allocated depending on such Eligible Holder’s Holder Category when they tender, calculated with the consideration ratios described in the applicable table in Appendix C attached hereto (the “Exchange Consideration Ratios”) per principal amount of Eligible Bonds tendered (including the Accrued Interest Payable in respect thereof), which Exchange Consideration Ratios are, for the avoidance of doubt, the same Exchange Consideration Ratios as in the February 2023 Exchange.
Category B Holders whose validly submitted offers or exchange instructions are accepted by the Government will receive a New Tranche of each of the Republic of Ghana’s Domestic Exchange Series 2023-B-1 Bonds due 2027 and Domestic Exchange Series 2023-B-2 Bonds due 2028 (such New Tranches, the “Category B New Tranches”), allocated using the Exchange Consideration Ratios.
General Category Holders whose validly submitted offers or exchange instructions are accepted by the Government will receive New Tranches of the Republic of Ghana’s Domestic Exchange Series 2023-GC-1 through 2023-GC-12 (such New Tranches, the “General Category New Tranches”) depending on whether the tendered Eligible Bonds are or were due 2023 (the “Eligible 2023 Bonds”) or later than 2023 (the “Eligible Post-2023 Bonds”), in each case allocated using the Exchange Consideration Ratios.
As described in more detail in the tables in Appendix B attached hereto (Financial Terms of the New Tranches), interest on the New Tranches will be paid in cash (“Cash Interest”), except that with respect to the General Category New Tranches only, and only during the period from and including 21st February 2023 to but excluding 18th February 2025, the Government will pay a specified portion of the interest (the “PIK Interest”) by instead increasing the principal amount of such General Category New Tranches. When the Government pays any PIK Interest, it will increase the principal amount of the applicable General Category New Tranches in an amount equal to the amount of PIK Interest for the applicable interest payment period (rounded down to the nearest GHS 1.00) to holders of such General Category New Tranches on the relevant record date.
Eligible Holders holding Eligible Bonds maturing on or prior to the Reopening Settlement Date (including, without limitation, any extension of the Reopening Settlement Date) (each such Eligible Bonds, a “Maturing Eligible Bond”) will not receive a final interest payment (except for Accrued Interest Payable for tendering holders as described herein) or a final principal payment (regardless of whether an Eligible Holder has tendered or not) on such Maturing Eligible Bonds. Offers or exchange instructions in respect of Maturing Eligible Bonds made after their maturity date but prior to the Reopening Settlement Date will be, and those made prior to such maturity date will remain, valid, and the Government will treat Maturing Eligible Bonds in respect of such offers or exchange instructions as still outstanding for purposes of the Invitation.
The Government reserves the right in its sole discretion to accept any and all offers with respect to any series of Eligible Bonds.
Offers may only be submitted starting today (the “Launch Date”) and ending at 4:00 p.m. (Greenwich Mean Time (GMT)) on 22nd September 2023 (the “Expiration Date”). However, the Government may at its sole discretion extend the Expiration Date (including for one or more series of Eligible Bonds). Offers may not be revoked or withdrawn at any time except in the limited circumstances described in the Exchange Memorandum.
On 29th September 2023 (the “ReopeningSettlement Date”) the Government will issue the New Tranches to Eligible Holders whose offers are accepted for credit to the account of such Eligible Holder at the CSD. The Government reserves the right to extend the Reopening Settlement Date (including with respect to one or more series of Eligible Bonds) without offering Eligible Holders the right to withdraw their offers.
Morrow Sodali Limited is acting as the information and coordination agent (the “Information and Coordination Agent”). Lazard Frères is acting as financial advisor to the Government in connection with the Invitation (the “Financial Advisors”).
Any questions or requests for assistance regarding the Invitation may be directed to CSD and/or the Information and Coordination Agent at the contact information set forth below.
Eligible Holders, or custodians for such holders of Eligible Bonds, may obtain a copy of the Exchange Memorandum by accessing the Invitation Website (https://projects.morrowsodali.com/ghanadde).
Summary of the Exchange Procedures for Eligible Holders
The exchange procedures are the same as for the February 2023 Exchange. Notwithstanding this, for convenience, we are restating the main procedures in the following paragraphs:
Eligible Holders interested in participating in the Invitation are invited to send an offer or exchange instruction to their respective CSD direct participant (the “Depository Participant”), in the form and via the channels agreed and customary between them.
As of the Launch Date and until the Expiration Date of the Invitation, Eligible Holders having active securities accounts balances and interested in participating in the Invitation will have the opportunity to send an offer or exchange Instruction to their respective Depository Participant.
Eligible Holders may download an exchange form from the website of the Central Securities Depositary (GH) Limited (“CSD”) (www.csd.com.gh/dde), complete and send the duly completed exchange form to their Depository Participant via email or via any internal communication platform they use (if any), or send an instruction in the format, or via any other standard means of communication available and accepted by the such Depository Participant.
By submitting an offer or exchange instruction, Eligible Holders consent to the blocking by the CSD of any attempt to transfer such Eligible Holders’ Eligible Bonds prior to the Settlement Date or the termination of the Invitation to Exchange.
For more details on these procedures, please refer to the Exchange Memorandum or contact the CSD at the contact information below. END
The Chamber of Corporate Trustees of Ghana has authorized its members to participate in an alternative debt exchange program for pension schemes.
This decision follows an announcement by the Ministry of Finance regarding the restructuring of ¢31 billion pension funds in the next phase of its Domestic Debt Exchange Programme (DDEP).
The Ministry’s initiative will impact E.S.L.A. Plc and Daakye Trust Plc, including debt in the energy sector and cocoa bills.
The Chamber collaborated closely with Organised Labour to offer technical guidance, leading to an agreement allowing Pension Fund Schemes to engage in the exchange.
“Board of Trustees of pension funds should independently assess the alternative offer from the MoF and participate in the exchange as they deem fit,” the statement added.
The Chamber emphasized that pension fund Boards of Trustees should independently assess the Ministry’s alternative offer and decide their participation.
Furthermore, they suggested that emergency board meetings be convened to facilitate inclusive decision-making.
The Ministry’s statement explained that the invitation aims to help Pension Funds maintain their value while exchanging Eligible Bonds for Bonds with greater liquidity. Offers for exchanging Eligible Bonds are irrevocable, subject to specific circumstances.
The submission period for offers runs from the Launch Date until 4:00 p.m. (GMT) on August 18, 2023 (the Expiration Date).
Asantehene has emphasized the need for collaboration between commercial banks and the Bank of Ghana to transform the banking industry.
This collaboration is seen as crucial in addressing economic challenges and finding lasting solutions.
During a courtesy call by Bernard Appiah Gyebi, the new MD of Prudential Bank Ghana Limited, the Asantehene advises building on the bank’s solid foundation and fostering innovation, particularly considering the impact of the Domestic Debt Exchange Programme.
The Asantehene commends the bank for its continuous support of businesses and the economy.
The purpose of the visit was to introduce the new MD to the King formally, who highlights the importance of deposit mobilization to support Small and Medium-Sized Enterprises.
The MD expresses gratitude for Asanteman’s support and assures improved performance during his tenure, counting on the Asantehene’s advice. The MD is accompanied by several bank representatives.
Pension funds increased their net position on the equity side of the Ghana Stock Exchange (GSE) as a result of a capital flight to safety partly prompted by the Domestic Debt Exchange Programme (DDEP), which they did by contributing 16 percent to trading activity between January and May 2023.
This compares favourably to the four percent recorded during the comparable period of 2022 and has contributed to the increase in domestic investor participation – which approached parity with offshore investor participation, rising to 47 percent during the period under consideration. Last year, it was 39 percent.
Commenting on the development, Head of Research-Databank Group, Alex Boahen, said it did not come as a surprise as pension funds – which held six percent of the domestic Treasury debt prior to the restructuring – “had their fingers burned” as a result of the DDEP, which he noted shattered the illusion of a risk-free nature for debt securities.
There have been campaigns to raise the level of pension funds’ participation in equities, including reforms to raise the regulatory threshold. This, however, had been greeted with apathy as corporate trustees continued to shy away from listed stocks – citing volatility and illiquidity on the market.
“In the past, pension funds and other institutional investors were excessively defensive; primarily focusing on the fixed-income market despite the law permitting a significant allocation to equities. However, they rarely utilised this option as bonds were providing returns of approximately 25 percent. The trustees ensured a conservative approach by fund managers, deeming additional risk unnecessary. Nevertheless, introduction of the DDEP changed this perspective as it revealed the possibility of government default,” he said.
“When the DDEP was announced, a scarcity of investment opportunities became apparent with the bond market becoming unattractive and Treasury bills being oversubscribed,” he added.
This comes as the total assets under management (AUM) of the nation’s three-tier pension scheme reached GH¢39.6billion by the end of December 2021, marking a significant increase from the GH¢33.5billion recorded in 2020.
This represents a growth of GH¢6.1billion and an 18 percent expansion compared to the previous year. Of this, pension funds can invest a maximum 75 percent of their assets in government debt instruments and 10 percent in the ordinary shares of listed companies.
Drivers
Stocks with defensive qualities – those that tend to provide stable earnings and consistent returns, even during an economic downturn. Chief among them has been oil marketing company (OMC) stocks, especially Total as well as MTN and Benson Oil.
Databank’s Head of Research explained that as these stocks offering dividend yield above 6 percent, coupled with the likelihood of capital gain – the difference between the price the stock was bought for and what it was sold for – ensure that they offer a compelling argument against the new bonds, which have an average yield of nine percent.
These stocks were better able to withstand rising costs compared to their peers, and OMCs in particular enjoy a fair degree of pricing freedom – with regular reviews reflecting the cost changes. At close of the second trading week in June, Total had a share price of GH¢6.45 – a 61.3 percent appreciation over the GH¢4 with which it began the year.
MTN – which Mr. Boahen said had transformed into a utility company, as its call, data and mobile money services were akin to water and electricity – had seen a 33 percent year-to-date rise in its share as it traded for GH¢1.19.
While Benso Oil did not fit the bill directly, as its primary product – crude palm oil – experienced elevated prices and a significant portion of its revenue came from exports in US dollars. The palm oil producer had seen its share price jump by 84.4 percent since turn of the year, to hit GH¢14.11 at end of the second week in June.
Mr. Boahen emphasised that investing in such companies acts as a hedge against inflation and currency instability, as they are less likely to erode in value.
He further mentioned that banking stocks did not perform as well due to uncertainties surrounding their capitalisation positions and outcomes of the International Monetary Fund (IMF) deal. Additionally, banks are unable to pay dividends during this interim period.
Regarding the underperformance of banking stocks, he stated: “That’s why the banking stocks have not done as well, and we expect thin trading there until there is clarity on their capitalisation positions and how well the IMF deal plays out. Banks also cannot payout dividends in the interim”.
The GSE Financial Stocks Index (GSE-FSI) had experienced some marginal gain by the middle of June, reaching 1,684.87 points. This translates to a one-week gain of 0.58 percent, a four-week loss of 0.19 percent and a year-to-date loss of 17.91 percent. The Accra bourse’s Composite Index (GSE-CI) had recorded an 8.14 year-to-date gain with its market capitalisation at GH¢ 67.29billion.
Former National Chairman of the People’s National Convention (PNC) Bernard Mornah, has said that the pensioner bondholders are partly to be blame for their current state.
He said he warned them about the Finance Minister but the pensioners ignored his warning and rather heeded to a meeting with Ken Ofori-Atta.
“[They] put a hold at that time when we were telling them Ken Ofori-Atta should not be believed.”
Mr Mornah said this on Tuesday, May 9, when sharing his thoughts on the recent picketting by the pensioner bondholders.
The retirees who decided not to subscribe to the Domestic Debt Exchange Programme (DDEP) returned to the Ministry on Monday, May 8 to demand payment of their mature coupons and principals.
According to them, government and, for that matter, the Finance Ministry has failed in payment on almost all the timelines given.
Convenor Dr Adu Anana Atwi on Monday told journalists that until they are paid they will continue to hang around the premises of the Ministry
Speaking about the action and plight of the pensioner bondholders, Mr Mornah said when they staged the first picketting in February, Arise Ghana Movement, the group he is Convenor for, joined forces with #FixTheGhana Movement to back the pensioner bondholders.
But he said the pensioner bondholders ignored their advice to speak with Mr Ofori-Atta when the minister called for a meeting with the protesting retirees.
Mr Ofori-Atta, according to the former National Chairman of the PNC, wanted the pensioners out of his premises in order to make a good case to the International Monetary Fund (IMF).
“Because Ken Ofori-Atta needed their absence at the Ministry to go and say my people have accepted.”
He expressed sympathies with the pensioner bondholders but said Mr Ofori-Atta cannot be trusted to pay their mature coupons and principals.
The governmentis making efforts to lessen the effect of the Domestic Debt Exchange Programme (DDEP) on the financial industry, this is according to President Akufo-Addo.
Speaking at the 2023 International Labour Day parade he stated that among other things the government has established the Ghana Financial Stability Fund as earlier announced as part of the process of ensuring the finance sector is aided amid the debt restructuring.
This fund he noted would provide, amongst others, solvency and liquidity support to eligible financial sector institutions, which may be affected by the Domestic Debt Exchange Programme.
“In addition, the Bank of Ghana and the regulators in the financial sector space have provided some regulatory reliefs to support affected institutions.
“In keeping with our common objective, the government, through the Financial Stability Council, will monitor continuously the impact of the Domestic Debt Exchange Programme on financial institutions to enable it to take remedial action, if and when necessary.”
President Akufo-Addo added that this would ensure that measures put in place to safeguard incomes, deposits, pensions, investor funds and assets are effective.
Meanwhile, he also assured organised labour of the protection of their pension funds as the government continues its debt restructuring programme aimed at securing an IMF deal.
President Akufo-Addo noted that his outfit is aware of the impact of the restructuring on workers and as such aimed to explore other beneficial options within debt sustainability limits with the cooperation of both Government and Organised Labour.
He said that “In undertaking the Domestic Debt Exchange Programme, we have been very mindful of its potential impact on the pension funds of workers.
“We will not act in any way to short-change workers in protecting their pensions.”
The Pensioner Bondholders Forum will return to the Finance Ministry today, Friday April 28, 2023, to demand that matured coupons and principals of their bonds are paid.
The government has failed to meet its obligations to pensioner bondholders who were exempted from the Domestic Debt Exchange Programme (DDEP) and to individual bondholders who did not participate in the scheme.
Since February 2023, principals and coupons on 22 bond issuances totalling over GH¢1 billion have been outstanding.
Pensioner bondholders who picketed at the Finance Ministry for two weeks to demand an exemption from the debt exchange scheme have stated that if payments are not made immediately, they will resort to the same action.
“We were promised to be paid, as and when it is due. But now here we are, coupons are overdue. Some of them including the principals are well overdue for more than two months. All that have not been paid and that is what we are facing. That is the saddening situation we are facing. This is where we have said that, if government does not pay us by today, pensioners will resume their picketing at the Ministry of Finance.”
The forum in an earlier statement expressed disappointment over the government’s inconsistency regarding assurances to pay all pensioners their outstanding coupons and principals of bond investments.
The Convener of the Forum expressed the pain and financial hardships members have had to go through as a result of the delay and requested that the payments be made as demanded in the Forum’s letter of March 30, 2023, to the Finance Minister, Ken Ofori-Atta.
IBHAG appears to have reversed its decision to withdraw from the Technical Committee of the government’s Domestic Debt Exchange Programme (DDEP).
The association last week announced that it had recused itself from the committee due to a lack of alignment with the interests of its members.
However, latest developments indicate that representatives of IBHAG attended the technical committee’s virtual meeting held on April 27, 2023.
“Contrary to its stated position, however, two representatives of IBHAG attended the technical committee’s virtual meeting held on Thursday morning.
“They made contributions and backed the proposals by the Individual Bondholders’ Forum to help ease the burden of the DDEP on individual bondholders.
“Also in attendance at the meeting were representatives of IBF and officials of the Finance Ministry. IBHAG and IBF both represent individual bondholders. There have been suggestions for the two of them to merge but as their approaches differ, they have remained as distinct entities even though both of them are working towards the same goal,” the Individual Bondholders said.
IBHAG last week accused sister body, the Individual Bondholders Forum (IBF) of not pushing the interest of its members and announced the decision to withdraw from the committee.
IBHAG’s convener, Martin Kpebu, noted that the government could not continue to ignore the suffering of individual bondholders, who are being punished for not signing up to the DDEP, and asked for a more sensitive and humane approach to alleviating their plight.
“The Government cannot continue to be insensitive to the suffering of the individual bondholders by deliberately punishing those who did not sign up to the DDEP as it meticulously executes the various threats made to them for not signing up. The Ministry cannot keep making things comfortable for the government by not sharing in the burden of the economic hardship we are in as a country under its leadership,” the group noted.
Kpebu also criticized the Convener of the Individual Bondholders Forum (IBF), Senyo Hosi, for his wavering views and alleged closeness to the Ministry of Finance.
“Senyo Hosi of IBF, appears to be an appendage of the Ministry of Finance; doing its bidding. This is supported by the wavering views, which departs completely from the past collective position of individual bondholders. Private meetings between Senyo Hosi of IBF and the Ministry of Finance, are not the solutions to the concerns of Individual Bondholders whose coupon and principal payments have been in arrears for over two months,” he said.
International ratings firm Fitch has downgraded Ghana’s Long-Term Local-Currency (LTLC) Issuer Default Rating (IDR) to Restricted Default (RD) from ‘CCC’.
According to Fitch Ratings, this is due to missed payments on some local-currency-denominated bonds issued prior to the Domestic Debt Exchange Programme (DDEP).
In May this year, Fitch Ratings upgraded Ghana’s LTLC IDR to ‘CCC’ from ‘RD’ following the completion of the DDEP on February 21, 2023.
But Fitch in its recent Rating Action Commentary published on April 21, 2023, explained that the reversal reflects missed payments on bonds that were not tendered or held by ineligible entities for participating in the domestic debt restructuring exercise.
“The downgrade of Ghana’s LTLC IDR to RD reflects the missed payments on some local-currency-denominated bonds that were not tendered or that are held by entities not eligible for participating in the domestic debt exchange,” the ratings agency noted.
Fitch continued, “The Republic of Ghana announced it was resuming payments on local-currency bonds issued prior to the domestic debt exchange (the ‘old bonds’) on 13 March 2023 to bondholders who were either ineligible or did not participate in the domestic debt exchange. However, the authorities have subsequently acknowledged that only the coupon payments on the two-year note that matured on 20 February 2023 and the 20-year note maturing in 2039 had been made. The principal payment on the former note has not been made”
Fitch further cited uncertainty regarding the clearing of missed payments as it believes the government has not clarified whether missed payments will be settled to all categories of holders of ‘old bonds’ after meetings were held with representatives of individual bondholders and pension funds.
Meanwhile, Fitch said about 35 payments consisting of principal or coupon, were due on the outstanding ‘old bonds’ between January 20, 2023, and April, 20 2023.
In addition to the rating action, Fitch has downgraded Ghana from ‘CCC’ to ‘CC’ based on the issue rating of five local-currency bonds issued prior to the debt exchange.
The agency has subsequently also withdrawn the rating on these securities due to the limited information and uncertainty regarding the timely servicing of the securities issued prior to the domestic debt exchange.
The association in a statement noted that the deliberations were causing further harm and despair to bondholders, which diverges from the government’s promises to them. IBHAG’s Convener, Martin Kpebu, noted that the government could not continue to ignore the suffering of individual bondholders, who are being punished for not signing up to the DDEP, and asked for a more sensitive and humane approach to alleviating their plight.
“The Government cannot continue to be insensitive to the suffering of the individual bondholders by deliberately punishing those who did not sign up to the DDEP as it meticulously executes the various threats made to them for not signing up. The Ministry cannot keep making things comfortable for the government by not sharing in the burden of the economic hardship we are in as a country under its leadership,” the group noted.
The association insisted that it will, however, stick to the earlier timelines of payment agreed with the government and expects payments to be effected to its members on outstanding principals and coupons.
“IBHAG will hold on to the already agreed timeline as per earlier meeting on the 14th of April 2023 with the Ministry of Finance where we expect all outstanding Principals and coupons to be paid. We urge you to consider a more sensitive and humane approach to alleviating the plight of the suffering Individual Bond Holders in Ghana,” he stated.
Kpebu also criticized the Convener of the Individual Bondholders Forum (IBF), Senyo Hosi, for his wavering views and alleged closeness to the Ministry of Finance.
“Senyo Hosi of IBF, appears to be an appendage of the Ministry of Finance; doing its bidding. This is supported by the wavering views, which departs completely from the past collective position of individual bondholders. Private meetings between Senyo Hosi of IBF and the Ministry of Finance, are not the solutions to the concerns of Individual Bondholders whose coupon and principal payments have been in arrears for over two months,” he said.
About 23 banks in the country are projected to lose about GH¢6.1 billion as a result of the reduced coupon rate and the extension of the maturity period from five to fifteen years.
The analysis of the DDEP by Dr. Richmond Atuahene and K B Frimpong, reported by JoyBusiness and cited by GhanaWeb, highlights that banks would have earned a cash flow of approximately GH¢10.1 billion during the period with an original coupon rate of 19.3% per annum.
The report indicated that the implementation of the DDEP, earnings from investments in Government of Ghana Bonds will be heavily impacted by the extension of maturity period and decrease in coupon rate.
“This liquidity gap is a result of the drop in the average bond rate of 19.3% to weighted average rate of 9% per annum, thus leading to nominal negative liquidity gap of 10.3%. The liquidity gap is expected to get worse if the average customer deposit rate was around 10% per annum, but later declined to weighted average rate of 9% per annum,” the report said.
“For example, Bank A with a bond value of GH¢9, I06,452,000 and average coupon rate of 19.3% would have had cash flow of GH¢1,821,290,000, but with the Domestic Debt Exchange Programme, the effective rate of 9% per annum will cause a drop in cash flow to GH¢720,927,000, thus leading to liquidity gap of GH¢1,100,363,000”, it added.
Meanwhile, an earlier report had disclosed that banks operating in Ghana stand to lose approximately GH¢41.3 billion from the DDEP between 2023 and 2028.
The computation of the Net Present Value (NPV) of the 23 local banks revealed that the losses could tally up to GH¢41.315 billion.
The Ghana Stock Exchange (GSE) reports that market activity on the Accra bourse was driven by strong increases in the prices of some shares in March of this year.
The GSE Composite Index (GSE-CI), which tracks the performance of all companies trading on the Accra bourse, increased by 14.01 per cent in March, bringing the year-to-date gain to 12.33 per cent, the GSE said in the summary of March 2023 market activities copied to the Ghanaian Times.
“The continued rally of the GSE-CI was underpinned by dividend announcements from some listed companies and investors seeking to diversify their holdings,” GSE stated.
It said the volumes of and values traded on the Accra bourse went up significantly by 2,730 percent and 588 per cent respectively, over the previous month mostly due to block trades in MTN Ghana shares.
The total value of 181,344,788 were traded on the market at a value of GH¢199,048,178.41, while total market capitalisation of the Accra bourse at the end of March stood at GH¢67,846.89.
The report said TOTAL shares went up by 39.82 per cent, MTNGH, 35.87 per cent, UNIL, 33.78 per cent, BOPP, 20.93 per cent, and GGBL, 9.49 per cent, and they made up the top five price gainers in March.
However, the GSE Financial Stock Index, on the other hand, achieved a year-to-date loss of 11.98 per cent in line with investors’ expectations of reduced profitability in 2022 for financial stocks.
On the equities market, the report said, the volume of shares traded in March stood at 173,658,609 valued at GH¢167, 969,700, both down by 19.22 per cent and 29.17 compared to the same period last year.
The volume and value of shares traded in the same period last year were 280,656,909 and GH¢301, 850,157.39.
“The cumulative volume of 181,344,788 valued at GH¢199, 048,171.4, represent a decrease of 35.39 and 34.06 per cent to the same period last year,” the GSE said.
On the Ghana Fixed Income Market (GFIM), the report said the GSE’s fixed income market closed March 2023 with a volume traded of 5.57 billion, a decline of 39.26 per cent and 80.18 per cent respectively, over the previous month’s and same period in 2022 numbers.
“Yields on short-term Government securities came down significantly during the Month, the 91-day Treasury bill ended the month at 19.39 per cent from 35.55 per cent at the beginning of March 2023. The new Government of Ghana bonds witnessed thin trading during its first full month of trading, post the Domestic Debt Exchange Programme,” the report said.
It said the month closed with a total volume trade of GH¢5.57 billion, representing a decline of 39.26 per cent compared to total volume trades in the previous month and a decline of 80.18 per cent compared to the same period last year.
The report said the cumulative volume traded from January to March 2023 of 24.76 billion was a 61.35 per cent dip from the 64.07 billion traded in the same period last year.
The cedi remains relatively strong despite weak economic fundamentals, says market observers GCB Capital and Constant Capital.
Although the local unit has lost 4.4 percent against the US dollar as of March 28, the performance beats market expectations due to anticipated seasonality effects in Q1 2023 amid weaker foreign exchange reserve position and the highly bearish end to 2022, while the interbank reference rate has depreciated by 22 percent.
This is believed to result from efforts by the Bank of Ghana to tighten market spreads and quell speculation. Despite concerns over a weaker forex reserve position, export receipts have helped to drive a year-on-year (y/y) surplus for the merchandise trade account.
GCB Capital, in its report analysing the recent Monetary Policy Committee (MPC) decision to increase the policy rate by 150bps, suggested that limited trading activity on the Ghana Fixed Income Market [GFIM] has slowed down FX demand pressure from portfolio reversals – further supporting the cedi’s strength.
“We believe this surplus trade balance and the ongoing gold purchase programme have limited the rate of reserve depletion and sustained the central bank’s FX liquidity management efforts, on both the spot and forward market for build distributing companies,” GCB Capital said.
Additionally, the breakthrough in negotiations with China has brought the country closer to securing International Monetary Fund (IMF) Executive Board approval – with an official start of the IMF programme expected to unlock a balance of payment backstop for the cedi’s resilience in the second half of 2023.
“We believe the local unit’s near-term performance hinges on progress of Ghana’s external debt restructuring – including securing assurances from its bilateral creditors and capital market bondholders, as well as the delayed IMF Executive Board approval for an economic programme,” Constant Capital said.
Expressing a similar view, Apakan Securities mentioned that progress made on the local debt treatment alongside further engagements by government with its external creditors has improved market sentiments.
“After kicking off the year on a weaker foot against the US dollar and other major trading pairs, the local currency has regained its footing in recent weeks. This is primarily driven by the central bank’s continuous FX support on the market amid lower demand. Additionally, progress made on the local debt treatment with further engagements by government with its external creditors has improved market sentiments,” Apakan Securities said.
The market generally holds the view that the country’s breakthrough in negotiations with China has brought it closer to securing IMF Executive Board’s approval, which should unlock a balance of payment backstop – further supporting the cedi’s resilience through the second half of 2023. However, analysts noted that near-term performance of the local unit hinges on progress in Ghana’s external debt restructuring and securing assurances from its bilateral creditors and capital market bondholders.
“We believe the Ghanaian economy is facing significant challenges, but the resilience of the currency so far is positive news for investors,” said GCB Capital. “The currency’s strength will depend on progress in talks with creditors and the IMF, as well as efforts to manage liquidity and inflation.”
Although the Domestic Debt Exchange Programme (DDEP) has been less of a liquidity problem than expected, there have been solvency concerns for some commercial banks. The two percent reduction in the cash reserve ratio has led to excess liquidity in the interbank market, but banks have been cautious over loan book expansion due to uncertainties and heightened risks.
As a result, there has been a strong growth in broad money supply; which could be inflationary.
In response the MPC hiked the monetary policy rate by 150bps, which was seen as a surprise, as well as an additional measure of raising the cash reserve ratio (CRR) on domestic currency deposits from 12 percent to 14 percent, effective 13th April 2023.
GCB Capital suggests that the move signals commitment to sustaining a tight monetary policy stance until the disinflation process strengthens. However, this decision has trade-offs for growth and employment, particularly as the growth pulse has softened since second-half 2022.
“The decision has high trade-offs for growth and employment, particularly with the growth pulse softening considerably since 2H22,” GCB Capital added.
The fall in banks’ capital levels would make the sector do more targeted lending, Fitch Solutions has projected.
“Local banks will be more inclined to lend to industries with low non-performing loans (NPLs) ratios and positive outlook, especially since we expect to see a rise in NPLs in the coming quarters, given the challenging macro backdrop and slowdown in loan growth”, Fitch Solutions said in its latest report.
“We think that the Mining & Quarrying sector stands out as it has a low NPL ratio of 4.0%, and as we forecast a positive outlook for gold mining in Ghana (which accounts for 95% of the country’s mineral revenue)”, it explained.
On the other hand, it said nearly one-third of all construction loans are non-performing, which suggests that banks are unlikely to increase their exposure to this sector amid challenging economic conditions.
DDEP could ‘significantly affect banks’ solvency, stability’ – Fitch Solutions
According to Fitch Solutions, the domestic debt restructuring programme has led to a significant fall in the capital levels of banks in Ghana and could threaten the solvency and stability of the sector.
It said: “Banks are entering this phase with a mixed capital picture, with some banks very close to the minimum regulatory capital level of 13.0%”.
Fitch Solutions also pointed out that capital buffers have fallen considerably in 2022, despite a sudden rise in December.
The fall, it noted, was largely driven by mark-to-market losses on investments and increases in risk-weighted assets of banks, due to the depreciation of the cedi and growth in loans and advances.
However, capital levels narrowly avoided falling below the minimum requirement in December 2023, likely as a result of banks retaining more of their earnings, in preparation for expected losses in profits and capital in 2023.
“The debt restructuring and fall in capital could lead to higher funding costs for banks if they become less creditworthy, and could significantly impact the banking sector’s solvency and stability”, Fitch Solutions warned.
The warning by Fitch Solutions dovetails into similar sentiments expressed by the Bank of Ghana recently.
DDEP: Banks’ capital buffers ‘weakened’, require ‘contingency measures to contain potential financial stability risks’ – BoG warns
The central bank said macroeconomic challenges and the recent domestic debt exchange programme (DDEP) have weakened banks’ capital buffers.
The situation, according to the Governor of the central bank, Dr Ernest Addison, requires urgent measures to forestall financial stability risks.
At the regulator’s recent Monetary Policy Committee meeting on Monday, 27 March 2023, Dr Addison reported: “The macro-prudential risk assessments conducted during the last MPC meeting indicated increased pressure on profitability and solvency of banks prior to the implementation of the DDEP”.
“The preliminary data available at this MPC, show that the pre-pandemic capital buffers in the banking sector have been weakened somewhat by the recent macroeconomic challenges and the DDEP, although banks remain liquid”, he explained.
“These require contingency measures by banks, supported by the regulatory reliefs to contain potential risks to financial stability”, Dr Addison suggested.
He said: “The Bank of Ghana will continue to monitor these developments going forward, and stands ready to act very swiftly to safeguard the stability of the financial sector”.
Read the MPC’s full statement below:
Good morning, ladies and gentlemen of the media and welcome to the press briefing after the 111th Monetary Policy Committee (MPC) meetings which took place last week.
The Committee deliberated on recent macroeconomic developments and assessed the current state of the economy and risks to the inflation and growth outlook.
A summary of the assessment and key considerations that informed the Committee’s decision on the stance of monetary policy is provided below:
1. Global growth is projected to decline in 2023 to 2.9 percent, down from the 3.4 percent in 2022 (according to recent IMF projections released in January 2023). The projected slowdown comes on the back of persistent elevated inflation levels, tightened financial conditions, and uncertainty stemming from the lingering effects of the Russia-Ukraine war. The onset of the recent turmoil in the banking sector in the U.S. and Europe is likely to further cloud the outlook. The above notwithstanding, latest Purchasing Managers’ Indices (PMI) pointed to some rebound in economic activity in February 2023, reflecting the moderation in price pressures, improved supply chains, and the re-opening of China’s economy. But it is unclear yet how the recent banking sector crises in the U.S. and Europe would impact this initial rebound.
2. Headline inflation in Advanced Economies appears to have peaked, and currently on a steady decline across advanced and emerging market economies, driven by lower energy and food prices stemming from weakened global demand and easing supply chain constraints. However, underlying inflationary pressures persist mainly from the pass-through effects of high input costs, rising wages especially in advanced economies, and currency depreciation against the U.S. dollar. In the outlook, global headline inflation is expected to ease to 6.6 percent by December 2023, from 8.8 percent in December 2022, reflecting declining fuel and non-fuel commodity prices and the effects of central bank policy actions.
3. Global financial conditions eased somewhat in early 2023 as slower growth and moderating inflation in advanced economies led markets to price in further reduction in the pace of future policy rate hikes. More recently, the U.S. Federal Bank of Ghana Monetary Policy Committee Press Release March 27, 2023 2 Reserve, European Central Bank, and the Bank of England have all increased their respective policy rates, albeit at a slower pace, but with commitment to maintain a tight monetary policy stance until inflation is contained. Meanwhile, concerns that inflation may stay elevated for longer than previously anticipated kept long-term bond yields high, while fears about global growth prospects and the hawkish posture of central banks in advanced economies amid the ongoing turbulence in the banking system, have triggered volatility in the equities market.
4. On the Domestic Scene, recent price developments indicate that the inflation surge in the economy, witnessed since December 2021, has peaked. The latest two readings since the January MPC meeting indicated two consecutive drops in headline inflation from the peak of 54.1 percent in December 2022 to 53.6 percent in January 2023, and to 52.8 percent in February. The latest decline in inflation was attributed to lower food inflation, while non-food inflation remained broadly stable. Food inflation declined to 59.1 percent in February 2023 from 61.0 percent a month earlier, while non-food inflation remained flat at 47.9 percent.
5. Underlying inflationary pressures also eased in the first two months of the year. Excluding energy and utility prices, the Bank’s core inflation measure, declined from 53.2 percent in December 2022 to 52.8 percent in January and to 52.0 percent in February 2023. Also, the weighted inflation expectations of banks, consumers, and businesses, declined.
6. In the real sector, the Bank’s high frequency indicators pointed to further moderation in economic activity in line with the challenging macroeconomic environment. The January 2023 update of the Bank’s Composite Index of Economic Activity (CIEA) indicated a contraction in economic activity by 7.6 percent, compared to a growth rate of 4.2 percent in the same period of 2022. The main indicators that weighed down the Index during the period were port activity, cement sales, imports, and credit to the private sector.
7. While real sector activity showed continued decline, both business and consumer sentiments continued to show further improvement in February 2023. Consumer confidence improved on account of easing inflationary pressures which led to some optimism about future economic conditions. Also, business sentiments improved as companies met short-term targets amid positive company and industry prospects. The survey findings were consistent with observed trends in Ghana’s PMI for February 2023, which rose above the benchmark level of 50 for the first time since January 2022.
8. Development in the monetary aggregates in February 2023 showed strong growth in broad money supply (M2+), an indication of increased liquidity in the banking system, driven mainly by expansion in the Net Domestic Assets. M2+ recorded an annual growth of 44.9 percent in February 2023, compared with 17.7 percent in February 2022, reflected in currency outside banks and deposit liabilities of the 3 banking sector. Reserve money similarly went up by 54.3 percent compared with 21.9 percent, over the same comparative period.
9. Annual nominal growth in private sector credit was up by 29.5 percent in February 2023, compared with 17.1 percent in the corresponding period of 2022. However, in real terms, private sector credit contracted by 15.3 percent compared with 1.2 percent contraction, over the same period a year before, due to the high level of inflation.
10. Developments in the banking sector broadly reflected the challenging operating environment in 2022 on account of macroeconomic conditions, and the recent implementation of the Domestic Debt Exchange Programme (DDEP) which all 23 universal banks participated in. Our preliminary assessment of the impact of the DDEP on the banking sector, based on December 2022 data, indicates significant losses on account of impairment of banks’ holdings in GoG bonds. The impact of the DDEP as currently assessed is moderated by the timely introduction of regulatory reliefs by the Bank of Ghana to support the banking sector, similar to the reliefs provided to banks at the onset of the Covid-19 pandemic. As a result, the industry is still fairly resilient. Our preliminary assessment will be updated once banks’ external auditors complete their audits of banks’ 2022 financial performance making the necessary adjustments to fully reflect the DDEP impact. Banks are expected to publish their 2022 audited financial statements by end April 2023 following a one-month dispensation granted by the Bank of Ghana on the account of the DDEP.
11. Total assets of the industry stood at GH¢209.4 billion in December 2022, representing a growth of 16.4 percent, reflecting sustained growth in deposits and exchange rate variations on banks’ balance sheets. Total investments declined significantly to GH¢64.8 billion in December 2022 from GH¢83.1 billion in December 2021, indicating a contraction of 22.1 percent, compared with the 29.0 percent growth in the same period a year before. Total credit, on the other hand, increased by 28.5 percent to GH¢69.1 billion in December 2022 from GH¢53.8 billion in December 2021. Of the total liabilities of the banking system, total deposits stood at GH¢157.9 billion, representing an increase of 30.4 percent year-on-year, compared with 16.6 percent recorded during the same period in 2021.
12. Key financial soundness indicators remained broadly sound, supported largely by the regulatory reliefs provided by the Bank. Among others, the minimum Capital Adequacy Ratio (CAR) required to be maintained by banks was reduced from 13 percent to 10 percent as of 31st December 2022, and losses from the DDEP are to be reflected in the computation of CAR over a period of up to three (3) years. Accordingly, the industry’s average CAR adjusted for the regulatory reliefs was 15.7 percent in December 2022, compared with the CAR of 16.6 percent as of December 2022 without the DDEP. The adjusted CAR reflected valuation losses on GoG bonds, elevated credit risk, and revaluation losses on foreign currency-denominated loans. Asset quality marginally improved, with the industry’s Non- 4 Performing Loans (NPL) ratio at 15.1 percent in December 2022, almost unchanged from 15.2 percent in December 2021, reflecting the higher growth in credit, which outpaced the growth in the NPL stock.
13. Provisional data on budget execution for January – December 2022 indicated a higher overall broad fiscal deficit (cash basis) of GH¢49.7 billion (8.1 percent of GDP), against the revised mid-year 2022 target of GH¢38.9 billion (6.3 percent of GDP). The primary balance (on cash basis) recorded a deficit of GH¢4.0 billion (0.6 percent of GDP), against a primary surplus target of GH¢2.5 billion (0.4 percent of GDP). Total revenue and grants amounted to GH¢96.7 billion (15.7 percent of GDP), marginally short of the revised target of GH¢96.8 billion (15.73 percent of GDP). Total expenditure was GH¢146.3 billion (23.8 percent of GDP) above the revised target of GH¢135.7 billion (22.0 percent of GDP). These developments resulted in a deficit of GH¢49.7 billion, of which GH¢48.2 billion was financed from domestic sources.
14. Prices of Ghana’s major export commodities traded mixed in February 2023 relative to the same period in 2022. Brent crude oil prices, which had been on a downward trend during the later part of 2022, increased in the first two months of 2023 as China gradually relaxed its COVID-19 restrictions. Brent crude oil dipped by 11.0 percent to US$83.9 per barrel in February 2023 from US$94.3 per barrel in February 2022. For the same period, cocoa beans traded at US$2,677.8 per tonne compared to US$2,681.1 per tonne. In contrast, gold prices recorded some marginal gains of 0.1 percent to settle at US$1,858.9 per fine ounce in February 2023, driven largely by weak US dollar and expectation of further interest rate hikes by the Federal Reserve Bank.
15. Despite the mixed performance in the prices of Ghana’s major commodities, the trade balance improved in the first two months of 2023 mainly on the back of higher export volumes. In the first two months, total exports expanded by 11.2 percent year-on-year to US$2.8 billion, driven mainly by higher gold, cocoa, and other export receipts. The value of gold exports amounted to US$1.1 billion, representing an increase of 35.8 percent, driven mainly by a 38.5 percent increase in export volumes to 619,373 ounces. Cocoa beans and product exports increased by 15.5 percent and 3.3 percent to US$387.6 million and US$159.3 million respectively, mainly on the back of higher production volumes. Earnings from ‘other’ exports, including non-traditional exports, were estimated at US$538.2 million, representing a 10.8 percent year-on-year growth. In contrast, exports of crude oil declined by 18.3 percent to US$562.6 million, largely due to lower export volumes.
16. The total import bill on the other hand, declined by 11.8 percent year-on-year to US$2.0 billion, driven by compression in non-oil imports. Non-oil imports dipped by 17.6 percent to US$1.4 billion, while oil and gas imports increased marginally by 4.8 percent to US$622.9 million. The combination of exports growth and lower imports resulted in a trade surplus of US$752.8 million for the first two months of 5 2023, higher than the trade surplus of US$205.8 million recorded for the same period in 2022.
17. For the year 2022, the overall balance of payments recorded a deficit of US$3.6 billion. The capital and financial account recorded a net outflow of US$2.1 billion (2.9 percent of GDP), mainly on account of lower FDI flows and significant portfolio reversals. These, together with the current account deficit of US$1.5 billion (2.1 percent of GDP), resulted in the deficit of the overall balance. As a result, Gross International Reserves for 2022 declined by US$3.5 billion to US$6.2 billion. Net International Reserves, which adjusts Gross reserves for the Heritage and Stabilization funds as well as other encumbered funds also declined by US$3.7 billion to settle at US$2.4 billion by December 2022. Gross International Reserves further declined to US$5.9 billion at the end of February 2023, providing cover for 2.8 months of imports of goods and services. However, Net International Reserves improved to US$2.6 billion, reflecting a slight decline in encumbered funds.
18. The local currency has been under pressure since October 2022, reflecting concerns about the DDEP, further sovereign rating downgrades, and seasonal demand pressures. However, the progress made on the DDEP and positive sentiments, thereafter, including the beginning of discussions with external debtors improved sentiments and helped reverse some of the losses. In the year to March 22, 2023, the Ghana cedi cumulatively depreciated by 22.1 percent, 23.5 percent, and 23.1 percent against the US dollar, the Pound, and Euro, respectively.
Summary and Outlook
19. To summarise, the Committee observed that, global growth is projected to moderate further, but with positive prospects of easing price pressures, improved supply chain constraints, and re-opening of China’s economy. However, risks to the growth outlook are still tilted to the downside, reflecting the lagged impact of policy rate hikes, potential slowdown effects from the recent banking sector turmoil in advanced economies, and further ramifications from the lingering geopolitical tensions.
20. Global inflation is easing as food and energy prices moderate due to weakened global demand, improved supply of goods, and continued monetary policy tightening. Despite the emerging risks to global financial stability, central banks in major advanced economies have demonstrated strong commitment to containing underlying inflationary pressures with sustained policy rate hikes, albeit, at lower rates than earlier anticipated. Global financing conditions have eased slightly, reflecting changing market expectations regarding the pace of policy tightening.
21. The US dollar index initially firmed up amid rising demand for safe-haven currencies following the collapse of Silicon Valley Bank and Signature Bank, but so far, swift regulatory action and assurances to contain contagion risks, combined 6 with decisions to boost dollar liquidity somewhat eased market concerns about a wider banking and financial crisis.
22. The Committee was of the view that the ease in price pressures abroad would likely impact positively on Ghana’s domestic inflation profile. On the other hand, the Committee noted that, the domestic economy still faces relatively tight global financing conditions, emerging risks in the global financial system, and heightened uncertainty about the global economic outlook. The effects of these on the domestic economy could be amplified by inherent vulnerabilities, including structural excess liquidity following the DDEP, and the widening negative output gap.
23. The macro-prudential risk assessments conducted during the last MPC meeting indicated increased pressure on profitability and solvency of banks prior to the implementation of the DDEP. The preliminary data available at this MPC, show that the pre-pandemic capital buffers in the banking sector have been weakened somewhat by the recent macroeconomic challenges and the DDEP, although banks remain liquid. These require contingency measures by banks, supported by the regulatory reliefs to contain potential risks to financial stability. The Bank of Ghana will continue to monitor these developments going forward, and stands ready to act very swiftly to safeguard the stability of the financial sector.
24. On fiscal policy, the Committee noted that the budget statement for 2023 has set fiscal policy on a consolidation path which is consistent with key elements agreed with the IMF at the Staff Level in December 2022. The domestic debt exchange, new revenue measures, and structural fiscal reforms will provide significant reduction of debt service and help create fiscal space. The fiscal outlook is contingent on financing of the budget and will require the conclusion of the domestic debt exchange programme as well as securing the requisite financing assurances from bilateral donors. Indications are that these discussions are proceeding well. Based on the above, it is imperative that Parliament prioritizes the passage of the revenue bills currently before it. Under the Staff Level Agreement with the IMF, the Bank of Ghana and the Ministry of Finance have finalised a Memorandum of Understanding on zero financing to the budget, which will be signed shortly. The passage of the relevant revenue bills by Parliament will therefore conclude the required prior actions to advance Ghana’s programme to the IMF Executive Board. This will be critical in resetting the economy on the path of recovery, including putting it firmly on a disinflation path and sustained growth.
25. Headline inflation has declined marginally for two consecutive months, but continues to remain relatively high compared to the medium-term target of 8±2 percent. To place the economy firmly on the path of stability and reinforce the pace of disinflation, it is important that the monetary policy stance be tuned further to re-anchor inflation expectations towards the medium-term target.
Given these considerations, the MPC decided to increase the Monetary Policy Rate by 150 basis points to 29.5 percent.
Additional Measures
26. The Committee also decided to reset the Cash Reserve Ratio on domestic currency deposits for banks from 12 percent to 14 per cent, effective 13th April, 2023.
In addition, the Bank will step up liquidity management operations to address excess liquidity conditions in the market.
The Committee will continue to monitor developments in the banking sector and deploy other macro-prudential tools to ensure financial stability.
Informational Note
The next Monetary Policy Committee (MPC) meeting is scheduled for May 17 – 19, 2023.
The meeting will conclude on Monday, May 22, 2023, with the announcement of the policy decision.
When history was made on the midnight of 7th January, 2021 with the election of Hon Alban Sumana Kingsford Bagbin as the Speaker of the Parliament of Ghana, there were high expectations from the people of Ghana for the Legislative Arm of Government to deliver on its mandate of serving as a check on the Executive and the Judiciary.
Having assumed the enviable role of speaker in the current the venerable Rt Hon Alban Sumana Kingsford Bagbin has not disappointed thus far as he discharges his duties and mandate with a clever, intelligent and clear sense of judgment bringing to bare his legal training and profession as a lawyer as well as his enviable experience of twenty-eight uninterrupted years as a parliamentarian.
As expected of any decision-making process which might draw both agreements and disagreements, the Parliament of Ghana has received its fair share. However, there have been some unique occasions on which the Rt Hon Speaker of Parliament has taken some bold and courageous decisions that have drawn and received the admiration and applause of the masses. Very notable among these instances include but not limited to the following;
1. OPEN ABHORRENCE AND CRITICISM OF LGBTQI+ ACTIVITIES; the strong and critical stance of the Rt Hon Alban Bagbin on the creeping and growing phenomenon of LGBTQI+ is no secret to the public. He has ceased every available opportunity to speak against it and shown an open support for legislation against it. Even at international conferences outside of Ghana, RT Hon Bagbin canvassed for support to criminalize the trend as it is inhuman and should not be tolerated. His courage and conviction to condemn LGBTQI Activities reached epic levels when he took a swipe at the US Vice President Kamala Harris and our own President Nana Akufo-Addo when their joint press conference suggested that Ghana was going to soften its stance on the call for legislation to curb the growing canker of LGBTQI in the country. This spirited response by the Speaker of Parliament has earned him enormous admiration by majority of the people.
2. DIRECTIVE TO GENERAL LEGAL COUNCIL TO IMMEDIATELY ADMIT SOME 499 LAW SCHOOL APPLICANTS WHO WERE DENIED ADMISSION; When the General Legal Council released results of the entrance examination into the Ghana School of Law in 2021, as many as four-hundred and ninety-nine students were unjustifiably denied admission under very strange and curious circumstances. These students were compelled to seek all manner of avenues including street protests to have their issues addressed all to no avail. It had to take a directive by the Speaker for the General Legal Council to have the famous 499 students admitted immediately without any further delay. This followed the inability of the Attorney-General and the General Legal Council to convince MR SPEAKER and Parliament on the propriety of their decision.
3. DITCHING OF THE SUIT AND CLOAK FOR EVERYDAY SITTINGS OF PARLIAMENT; Soon upon assuming the seat of speaker of parliament, the Rt Hon Alban Bagbin stole the hearts of Ghanaians when he ditched the wearing of the colonial suit and cloak for Ghanaian and Traditional African apparel safe on special occasions or ceremonies in Parliament. This decision by the Speaker apart from the tourism and marketing potential the Ghanaian and African costume offers to the local producers also sheds off the longstanding colonial mentality accompanying the previous dress code inherited from the colonial administration. This decision by the Speaker has been received with so much applause.
4. CALL FOR THE EXEMPTION OF PENSIONER FUNDS FROM THE DOMESTIC DEBT EXCHANGE PROGRAMME; On the raging and heated matter of the ongoing domestic debt exchange programme, the Government of Ghana through the Ministry of Finance sought to include the funds of pensioners in the programme. This was met with a spirited protest by the pensioners who would have been affected by this unpopular decision. The Rt Hon Speaker of Parliament invited the Minister of Finance to Parliament and proceeded to direct him to exclude the vulnerable pensioners from the programme considering their peculiar circumstances having toiled and sacrificed to contribute to building our nation. On this particular occasion, the Speaker of Parliament received commendations from the public.
Deputy Ranking Member of Parliament’s Finance Committee, Isaac Adongo, has slated the recent Fitch upgrade of Ghana’s Long-Term (LT) Local-Currency (LC) Issuer Default Rating (IDR) to ‘CCC’ from ‘RD’ (Restrictive Default).
According to him, there is nothing worthy to celebrate about the development as the current economic crisis in the country persists with Ghana on the brink of debt default.
In an interview with Accra-based Citi FM, Isaac Adongo pointed out that although Fitch has stated recent gains made by Ghana on the back of the Domestic Debt Exchange Programme, the government has only postponed the problem of debt default as the external debt restructuring is yet to take place.
“Fundamentally, there is nothing worthy to celebrate about the upgrade because what they have simply done is deny poor people and pensioners their monies and Fitch is celebrating that as a gain but to the people affected, they will not be happy and will not celebrate such a rating,” Isaac Adongo stressed.
The Bolgatanga Central lawmaker further described Fitch’s upgrade as a postponement of the country’s debt situation which has offered the government some breathing space.
“It is not about the economic recovery or improvement but about the implementation of the domestic debt exchange programme where we have engaged creditors on different terms which have created some room for breathing and so, that cannot be something that we should be celebrating,” Adongo is quoted by citinewsroom.com
Meanwhile, on March 22, 2023, Fitch upgraded Ghana’s Long-Term (LT) Local-Currency (LC) Issuer Default Rating (IDR) to ‘CCC’ from ‘RD’ (Restrictive Default).
It explained that the development follows the completion Domestic Debt Exchange Programme on February 21, 2023.
Fitch however said it viewed the transaction as a distressed debt exchange within the context of heightened fiscal pressures, with interest costs amounting to 54 percent of revenues in 1H22, and a lack of access to international capital markets.
Interest rates fell once again as government Treasury bills were oversubscribed by about 40.3% to the tune of ¢3.89 billion.
According to the auctioning results by the Bank of Ghana, demand for the 91-day T-bill was very high, pushing the yield down.
Following the successful completion of the Domestic Debt Exchange Programme, interest rates on the money market have witnessed a significant fall. From a high of 35%, the rates have eased to about 20% on average.
The yield on the 91-day bill fell by 0.52% to 18.52%.
At the same time, the 182-day rate also declined to 21.27%, from 22.84% the previous week.
Meanwhile, the government accepted ¢3.87 billion of the total bids submitted.
A chunk of the bids, however, came from the 91-day T-bill as ¢2.90 billion was accepted.
For the 182-day bill, the bids submitted were estimated at ¢983.7 million. But ¢972.4 million was accepted.
However, six banks may not experience any capital losses, while eight banks may experience mild capital losses.
According to a paper by banking consultants, Dr Richmond Atuahene and K B Frimpong, the impact of a domestic debt exchange on 23 banks’ balance sheets and their ability to provide credit to the economy could be significant as the banks are holding about 37% of government securities.
These losses could be due to a combination of coupon or interest rate reduction, and maturity extension with below-market coupon rates.
“From the data, the capacity of the banking sector to absorb losses is lower not where it is well capitalised to absorb the estimated losses from the debt exchange programme.
“Ghanaian banks will not be able to absorb losses without having to resort to a recapitalisation from the government, or resorting the shareholders and banks for recapitalisation quickly to mitigate the risk of bank failure and also protect the stability of the entire banking system and the economy”, it said.
Below is the research
ANALYSING THE DOMESTIC DEBT EXCHANGE PROGRAMME AND FAIR VALUE ACCOUNTING IMPACT ON LOCAL BANKS’ SOLVENCY
(DR RICHMOND A. ATUAHENE AND K.B. FRIMPONG FCCA)
1.0 BACKGROUND
The Ministry of Finance invited on December 5, 2022 holders of 60 old domestic debts to voluntarily exchange ¢137.3 ($14.3) billion domestic bonds and notes including E.S.L.A and Daakye Bonds, for a package of twelve new eligible domestic bonds. Under the debt swap or exchange announced on December 5, 2022, local holders including domestic banks, Bank of Ghana, Firms and Institutions, Retail and Individuals, Insurance Companies, Foreign Investors, Rural and Community Banks and SSNIT were to exchange ¢137.3 billion ($14.3) worth of 60 eligible domestic bonds for 12 new eligible bonds maturing between 2027 to 2038.
Under the initial offer for bondholders with bonds maturing in 2023, the government promised four new bonds that were expected to mature in 2027, 2029, 2032 and 2037 with zero coupon rate in 2023, 5% coupon rate in 2024 and a 10% coupon rate in 2025, which would continue till the maturity of last bonds in 2037. Initially, the Ministry of Finance stated that debt the exchange programme would affect local banks, Bank of Ghana, Firms and Institutions, Foreign Investors, Insurance Companies, Pension Funds, Rural and Community Banks and SSNIT but excluding Retail and Individual Bondholders.
The debt exchange programme was extended to December 30, 2022, because could not achieve the 100% voluntary participation. After fierce resistance from trade unions about the inclusion of pension funds in the domestic debt exchange programme and for the lack of enough voluntary participation, the government announced the extension of the voluntary participation in the programme to January 16, 2023 with following modifications:
Offering accrued and unpaid interest on eligible bonds and a cash tender fee payment to holders of eligible bonds maturing in 2023.
Increasing the new bonds offered by adding new instruments to the composition of the new bonds for a total of 12 new domestic bonds, one maturing each year starting January 2027 and ending January 2038.
Modifying the exchange consideration ratios for each new bond. The exchange consideration ratio applicable to eligible bonds maturing in 2023 will be different other from other eligible bonds.
Setting a non-binding target minimum level of overall participation of 80% of the aggregate principal amount outstanding of eligible bonds.
Expanding the types of investors that can participate in the exchange to include individual investor.
On January 16, 2023, the government extended the deadline for the domestic debt exchange programme to January 31, 2023, after another resistance by some creditor group particularly individual investors whom the government promised not to include in the programme.
The government made some modifications including:
Offering accrued and unpaid interest on eligible bonds and a cash tender fee payment as a carrot to holders of eligible bonds maturing in 2023.
(ii) Increasing the new bonds offered by adding eight new bonds to the composition of the new bonds, for a total of 12 new bonds, one maturing each year starting in January, 2027 and ending January 2038. The third extension of deadline for domestic debt exchange programme from January 31, 2023 to February 7, 2023, for voluntary participation and also as the final deadline for institutions and individuals to sign up to domestic debt exchange programme. The government has made offer which includes the exchange of new bonds with a maximum maturity of five years instead of original 15 years and a 10% coupon rate to individual bondholders below the age of 59 years to encourage them to participate in the domestic debt exchange programme. Additionally, all retirees including those retiring in 2023 will be offered bonds with a maximum maturity of 5 years instead of 15 years and a 15% coupon rate per annum.
Subsequent extensions of dates and payment maturities meant that the remaining stock was reduced from ¢137.3 billion to ¢130 billion. However, the eligible bonds as per memorandum meant an exclusion of pension funds and bonds that were subject to swap mechanisms for monetary and exchange rate policy operations. This then brought the eligible bonds tendering to ¢97.75 billion. Out of the total eligible bonds for tendering, ¢83 billion ($ 6.7 billion) was successfully tendered-accounting for about 85% of outstanding eligible amounts and meeting the target 80% as expressed in the memorandum of the exchange.
Nevertheless, the ¢87 billion (64%) that were successfully tendered represent only 60% of the original outstanding debt stock of ¢137.3 billion. The strategy employed by the Government of Ghana to achieve full participation for the GDX was aggressive. Although there was some financial sector consultation on expanding the range of instrument offering prior to crafting the exchange, the debt transaction offer was unilateral with a ‘take‐it‐or‐leave‐it’ approach.
With voluntary participation of only 64% (GH¢87 billion, not underpinned by strong fiscal consolidation, it will not necessary to reverse the adverse fiscal dynamics and reduce the debt overhang that has plagued Ghana for the four years and it will be difficult to achieve Debt to GDP ratio of 55% in 2028.
2. DATA ANALYSIS USING THE NPV OF LOCAL BANKS HOLDING OF GOVERNMENT BONDS AND NOTES.
According to Ministry of Finance (2022), the total government bond and domestic notes value of ¢137.3 billion with the local banks allocated ¢50.6 billion (37%); Firms and Institutions, ¢34.73 billion (25.3%), retail and individuals, ¢22.3 billion (13.9%), Foreign investors, ¢14.83 billion (10.8%); Bank of Ghana, ¢13.73 billion (10%); Rural and Community banks, ¢1.92 billion (1.04%); Insurance companies, ¢1.2 billion (0.09%) and SSNIT ¢55million (0.04%) excluding Pension funds ¢7.69 billion (5.6%) and Treasury bills valued at approximately ¢26.25 billion.
From our data analysis showed that the impact of losses on bank balance sheets had been significant because government securities comprised a large share of bank assets. Any loss in value of government debt exposures had led to capital losses in financial institutions unless these have already been absorbed by provisioning and Mark-to-Market (MTM) accounting which for past years most banks were not applying the MTM.
These recent losses could be due to a combination of coupon or interest rate reduction, and maturity extension with below-market coupon rates of 19.3%. The capacity of the banking sector to absorb losses had been lower, as the banking sector capitalization only to place three years ago. When banks are able to absorb losses without having to resort to a recapitalization from the government, the fiscal consolidation and/or burden-sharing by other creditors required to restore debt sustainability would be smaller
From our data analysis using the Net Present Value of the government bondholding of ¢50.6 billion (37%) of the total bonds, then the private sector could face severe challenges in the area of provision of new credit and extension of existing credit as a result of liquidity and solvency crisis in the banking sector. The impact of a domestic debt exchange on 23 banks’ balance sheets (and their ability to provide credit to the economy) could be significant as the Ghanaian domestic banks are holding about 37% of government securities.
Any loss in value of government debt exposures will lead to regulatory capital impairment in banking institutions at the time of the restructuring unless these have already been absorbed by loan-loss provisioning and mark-to-market accounting which was never applied prior to the restructuring. Such reduction in the value of government debt portfolio could be due to any changes to the original contractual value of the debt security, such as coupon reduction from 19.3% to a weighted coupon rate of 9%, and maturity extension from 5 years to 15 years.
From the existing discount rate of 19.3 % with 5-year maturity period to the weighted average coupon rate of 9% new bonds with extended maturity period of 15 years, our data analysis showed estimated losses using Net Present Value of ¢41,315,326,692 would impact negatively on 23 banks’ solvency. For example, Bank B with bond holdings of ¢9,106,452,000, it is estimated that with discount rate of 19.3% using weighted coupon rate of 9% NPV estimated losses resulted in ¢7,435.494,850 from the total shareholders’ equity of ¢2,853,177,000 (December 2021), thus giving the negative net worth of GHC4,452,317,850 making the bank insolvent.
If the IFRS 9 is applied in stricter sense nine banks could be insolvent. From the data analysis only last six banks, R.S.T.U.V and W may not experience any capital losses while eight banks may experience mild capital losses. These losses could be due to a combination of coupon or interest rate reduction, and maturity extension with below-market coupon rates. From the data, the capacity of the banking sector to absorb losses are lower not where it is well capitalized to absorb the estimated losses from the debt exchange program.
Ghanaian banks will not be able to absorb losses without having to resort to a recapitalization from the government, or resorting the shareholders and banks for recapitalization quickly to mitigate the risk of bank failure and also protect the stability of the entire banking system and the economy. Capital shortfalls are more likely to emerge for a tail of weak banks like A, B, E, D, G, J, K and few others because of their higher share of exposure to government domestic debt relative to their capital.
With the estimated losses using the NPV of banks holding of government bonds, the domestic debt exchange could also have a negative impact on the capital adequacy ratio of banks. The conversion of short-term debt into long-term had increased the risk-weighted assets of the banks which could reduce their capital adequacy ratio. This could lead to decline in the financial stability of local banks and increase the risk of bank failures.
The decline in capital adequacy ratio would lead to a reduction in the overall financial stability of the sector. Though the Bank of Ghana as part of the domestic debt restructuring, announced a regulatory forbearance for banks, it is very important for shareholders and board of directors for banks to take steps to mitigate the negative impact of domestic debt exchange programme exercise on their capital in the balance sheets as their corresponding banks may not recognize the Bank of Ghana’s regulatory forbearance.
3. THE IMPACT OF DDEP ACCOUNTING LOSSES UNDER IFRS 9 AND MARK TO MARKET VALUATION ON BANKS’ SOLVENCY.
The recent domestic debt exchange programme of unprecedented size and dire consequences is a major concern throughout today’s society, from the popular press to policy-makers, some politicians and academics in the country. A systemic banking crisis will occur as many as nine local banks in the country are in serious solvency problems at the same time because there are all hit by the domestic debt exchange program estimated losses using the NPV of their holding of government bonds and notes so the near collapse of prestigious banking institutions such as nine banks will be followed by the near paralysis of the banking sector with its negative consequences for the real economy, makes the past crisis a singular point in the series of modern crises and unquestionably qualifies it as the most severe one since independence of the country’s in 1957.
The uniqueness of the crisis has prompted efforts to identify its determinants and the solutions to cope with it. The crisis is frequently attributed to the bursting of the Ghana’s bond market bubble bust but such a complex event definitely presents a multidimensional profile as well as poor and lax risk management on the part of the banking fraternity. The recent domestic debt exchange program has led to a major debate about fair-value accounting. Many critics have argued that fair-value accounting, often also called mark-to-market accounting, could significantlycontributed to the banking insolvency or, at least, exacerbated its severity. In this section, we assess these arguments and examine the role of fair-value accounting in the banking insolvency using descriptive data and its empirical evidence.
Based on our data analysis, it is unlikely that fair-value accounting added to the severity of the domestic debt crisis in a major way but it could be due to poor risk management practices within the banking sector as well as regulatory capture and failure. While there may have been downward spirals or asset-fire sales in bond markets, we find evidence that these effects are the result of fair-value accounting. We also find support for claims that fair-value accounting leads to prudent excessive write-downs of banks’ assets which could impact negatively on banks’ solvency.
If anything, empirical evidence to date points in the opposite direction, that is, towards poor reporting, valuation and classification of government bonds and notes in the previous comprehensive financial position. Considering the estimated losses using the NPV of 23 local bank holding of government bonds and notes is about of ¢41,315,326,692 which could make nine banks insolvent while the other local banks would experience mild losses on both Capital adequacy ratio (CRD) and Common equity tier 1 (CET 1) ratio. The estimated losses would impact negatively on the statement of financial position and statement of profit or loss and other comprehensive income
In its pure form, fair-value accounting involves reporting assets and liabilities on its pure form, fair-value accounting involves reporting assets and liabilities on the balance sheet at fair value and recognizing changes in fair value as on the balance sheet at fair value and recognizing changes in fair value as gains and losses in the income statement. When market prices are used to determine fair value, fair-value accounting is also called mark-to-market account-determine fair value.
Some critics argue that fair-value accounting exacerbated the severity of the 2023 of domestic debt restructuring. The most commonly suggested and most plausible mechanism through which fair-value accounting could contribute to a domestic debt exchange program involves the link between accounting and bank capital regulation. The application of IFRS 9 standard requires the assets or equity interests received or surrendered by the debtor or the creditor are to be measured at fair value. The resulting losses shall be recognized in profit or loss of the local banks.
Under the fair value impairment under IFRS 9 issued and debt restructuring losses were transferred to the capital reserve under the financial position. The accounting treatment of the valuation changes arising from Ghana debt exchange would be a result of International Financial Report Standard 9 (IFRS 9), the treatment of financial assets is broadly classified as either measured at Fair Value or at Amortized cost. Fair value accounting recognizes a significant portion of the potential loss incurred before Ghana’s debt exchange event materializes.
Where market valuation reflects sovereign debt distress, early recognition of expected losses enhances the loss-absorbing capacity of banks in the event of a debt restructuring as much of the impairment will already be reflected in the banks’ balance sheet. IFRS 9 requires timely recognition of impairment losses on banks’ balance sheet. Securities held in the “fair value through profit or loss” (FVTPL) portfolio follow mark-to-market (MTM) valuation, and price movements directly affect regulatory capital through the profit and loss statement. For securities held in the “fair value through other comprehensive income” (FVTOCI) portfolio, realized gains or losses are also reflected in bank capital in the same way, but any unrealized gains or losses are accounted for as “other comprehensive income” (OCI).
Although amortized cost securities are not affected by changes in market price any expected credit loss will be accounted in the loan loss reserves. On banking sector outcomes, available indicators appear to suggest that the effects of domestic debt exchange operation overall could be unmanageable considering NPV estimated losses of the 23 banking institutions would impact negatively on regulatory capital. Under the IFRS 9 or mark-to-market, accounting can cause write-downs and regulatory capital problems for otherwise sound banks. If these banks were to write down its assets to these distorted prices and, as a result, the bank’s regulatory capital could be depleted, the write-distorted prices and, as a result, the banks’ regulatory capital could be depleted.
The Central bank has recently attributed the decline in the industry’s capital adequacy ratio from 19% to 16.6% in December 2022 as the results of losses to mark to market investments, an increase in risk in risk weighted assets and the depreciation of cedi on foreign currency denominated loans but the estimated losses using of the NPV of local banks holdings could be negatively significant. From the data analysis, we found that the estimated losses using the NPV of banking sector holding of government bonds and other notes could cause the depletion of regulatory capital adequacy ratios, followed critically by liquidity crunch, and decline in banks’ earnings and profitability, customers’ deposits run-down, and deterioration of quality of banks’ risk assets and reduction of banking activities in the area of lending to private sector and SME businesses.
4. Conclusion Many have called for a suspension or substantial reform of fair-value accounting because it is perceived to have contributed to the severity of the recent domestic debt restructuring. From data analysis, nine banks could be insolvent, while six banks would be solvent and eight banks would experience mild capital losses as a result of domestic debt exchange as well as the application of IFRS 9.
Based on our analysis and the evidence in the literature, we have little reason to believe that fair-value accounting contributed to Ghanaian banks’ problems in the domestic debt crisis in any major way but it was as a result of weak and poor risk management in the banking sector as well as regulatory failure in compliance with the of Banks and Specialized Deposit Taking Act 2016 Act 930 (Section 62 (1) on limit on financial exposures.
Fair values play only a major role for banks’ income statements and regulatory capital ratios, except for a few banks with large trading positions. For these banks, investors would have worried about too much exposures in government bonds and notes, and made their own judgments, even in the absence of fair-value disclosures and weak risk management practices in the banking industry.
In summary, we believe that the claim that fair-value accounting exacerbated the crisis is largely unfounded but it was due to weak and poor in risk management practices in the banking sector as well as regulatory failures on the part of Bank of Ghana. This implies that the case for loosening the existing fair-value accounting rules is weak. Nevertheless, our conclusions have to be interpreted cautiously and should not be construed as advocating an extension of fair-value accounting, it a call for improvement risk management practices in the banking sector as well as improvement in the regulatory framework
We need more research to understand the effects of fair-value accounting in government bonds and notes to guide efforts to reform the rules. One issue is that fair-value accounting loses many of its desirable properties when prices from active markets are no longer available and hence models have to be used, which in turn makes it very difficult to determine and verify fair values. Thus, it is certainly possible that fair-value accounting rules and the details of their implementation could be further improved.
However, standard setters face many thorny tradeoffs, several of which we discuss in greater detail in Laux and Leuz (2009). First, relaxing the rules or giving management more flexibility to avoid potential problems of fair-value accounting in times of crisis also opens the door for manipulation and can decrease the reliability of the accounting information at a critical time.
One read of the empirical evidence on bank accounting during the domestic debt restructuring is that investors believed that banks used accounting discretion to overstate the value of their assets substantially. The resulting lack of transparency and poor regulatory oversight about banks’ solvency could be a bigger problem in crises than potential contagion effects from a stricter implementation of fair-value accounting.
Second, even if (stricter) fair-value accounting were to contribute to downward spirals and contagion, these negative effects in times of crisis have to be weighed against the positive effects of timely loss recognition. When banks are forced to write down the value of assets as losses occur, they have incentives to take prompt corrective action and to limit imprudent lending in the first place, which ultimately reduces the severity of a crisis.
A central lesson of the 2017 -2018 Ghanaian banking crisis is that when regulators hold back from requiring financial institutions to confront their losses, the losses can rapidly become much larger. For the same reason, it is problematic if accounting rules are relaxed or suspended whenever a financial crisis arises because banks can reasonably anticipate such changes, which diminishes their incentives to minimize risks in the first place.
If the goal is to dampen pro-cyclicality, it may be more appropriate to loosen regulatory capital constraints in a crisis than to modify the accounting standards, as the latter could hurt transparency and market discipline
5. RECOMMENDATION
A policy strategy to eliminate shortfalls in bank capital has to be carefully designed to ensure financial stability while limiting fiscal risks, which is particularly difficult during a debt restructuring. Shortly after the domestic debt restructuring, Bank of Ghana should require viable banks that are likely to need recapitalization to develop a credible plan to restore compliance with capital requirements and buffers over a reasonable period of time, with close supervisory oversight of the implementation of these plans.
In some jurisdiction like Greece, public sector recapitalization or other state support for banks may be considered as a last resort to maintain financial stability and avoid disruption to the real economy, but this may offset part of the debt relief targeted through the domestic debt exchange. If this is the case, additional debt relief may need to be obtained from the sovereign’s other liabilities.
Leveraging a well-designed framework for bank resolution, resolution funding, and deposit insurance could help mitigate risks to financial stability, but contagion risks tend to be higher in debt restructuring cases where credible public sector.
Guarantees and funding backstops may not be available.
ii. Bank of Ghana must identify gaps in crisis management and bank resolution frameworks should be identified prior to the domestic debt exchange program. Gaps in early intervention, resolution, deposit insurance, and central bank liquidity assistance for which Bank of Ghana in the process of establishing Financial Stability Support Fund as well as the coordination arrangements among these elements should be addressed before the Domestic Debt Restructuring. Standard financial safety net components need to be supported by adequate contingency planning for each stage. Where prospects of private sector funding are weak and orderly resolution is unlikely to be feasible, further attention will need to be given to the design of schemes for the potential provision of public solvency support, including the forms of such support, safeguards to minimize moral hazard, and governance arrangements for the management of the public sector’s interest
The impact of the Domestic Debt Exchange Plan on the operations of nine Ghanaian banks could render them insolvent if the International Financial Reporting Standard (IFRS) 9 is enforced strictly.
Six banks, however, might not sustain any capital losses, while eight banks might sustain just slight losses.
A domestic debt exchange could have a significant impact on the balance sheets of 23 banks and their capacity to extend credit to the economy, according to a paper by banking consultants Dr. Richmond Atuahene and K. B. Frimpong. This is because the banks currently hold about 37% of all government securities.
These losses could be due to a combination of coupon or interest rate reduction, and maturity extension with below-market coupon rates.
“From the data, the capacity of the banking sector to absorb losses is lower not where it is well capitalised to absorb the estimated losses from the debt exchange programme. Ghanaian banks will not be able to absorb losses without having to resort to a recapitalization from the government, or resorting the shareholders and banks for recapitalization quickly to mitigate the risk of bank failure and also protect the stability of the entire banking system and the economy”, it said.
Below is the research
ANALYSING THE DOMESTIC DEBT EXCHANGE PROGRAMME AND FAIR VALUE ACCOUNTING IMPACT ON LOCAL BANKS’ SOLVENCY
(DR RICHMOND A. ATUAHENE AND K.B. FRIMPONG FCCA)
1.0 BACKGROUND
The Ministry of Finance invited on December 5, 2022 holders of 60 old domestic debts to voluntarily exchange ¢137.3 (US$14.3) billion domestic bonds and notes including E.S.L.A and Daakye Bonds, for a package of twelve new eligible domestic bonds. Under the debt swap or exchange announced on December 5, 2022, local holders including domestic banks, Bank of Ghana, Firms and Institutions, Retail and Individuals, Insurance Companies, Foreign Investors, Rural and Community Banks and SSNIT were to exchange ¢137.3 billion (US$14.3) worth of 60 eligible domestic bonds for 12 new eligible bonds maturing between 2027 to 2038.
Under the initial offer for bondholders with bonds maturing in 2023, the government promised four new bonds that were expected to mature in 2027, 2029, 2032 and 2037 with zero coupon rate in 2023, 5% coupon rate in 2024 and 10% coupon rate in 2025, which would continue till the maturity of last bonds in 2037. Initially, the Ministry of Finance stated that debt the exchange programme would affect local banks, Bank of Ghana, Firms and Institutions, Foreign Investors, Insurance Companies, Pension Funds, Rural and Community Banks and SSNIT but excluding Retail and Individual Bondholders. The debt exchange programme was extended to December 30, 2022 because could not achieve the 100% voluntary participation. After fierce resistance from trade unions about the inclusion of pension funds in the domestic debt exchange programme and for the lack of enough voluntary participation, the government announced the extension of the voluntary participation in the programme to January 16, 2023 with following modifications:
Offering accrued and unpaid interest on eligible bonds and a cash tender fee payment to holders of eligible bonds maturing in 2023.
Increasing the new bonds offered by adding new instruments to the composition of the new bonds for a total of 12 new domestic bonds, one maturing each year starting January 2027 and ending January 2038.
Modifying the exchange consideration ratios for each new bond. The exchange consideration ratio applicable to eligible bonds maturing in 2023 will be different other from other eligible bonds.
Setting a non-binding target minimum level of overall participation of 80% of the aggregate principal amount outstanding of eligible bonds.
Expanding the types of investors that can participate in the exchange to include individual investor.
On January 16, 2023, the government extended the deadline for the domestic debt exchange programme to January 31, 2023, after another resistance by some creditor group particularly individual investors whom the government promised not to include in the programme.
The government made some modifications including:
Offering accrued and unpaid interest on eligible bonds and a cash tender fee payment as a carrot to holders of eligible bonds maturing in 2023.
(ii) Increasing the new bonds offered by adding eight new bonds to the composition of the new bonds, for a total of 12 new bonds, one maturing each year starting in January, 2027 and ending January 2038. The third extension of deadline for domestic debt exchange programme from January 31, 2023 to February 7, 2023, for voluntary participation and also as the final deadline for institutions and individuals to sign up to domestic debt exchange programme. The government has made offer which includes the exchange of new bonds with a maximum maturity of five years instead of original 15 years and a 10% coupon rate to individual bondholders below the age of 59 years to encourage them to participate in the domestic debt exchange programme. Additionally, all retirees including those retiring in 2023 will be offered bonds with a maximum maturity of 5 years instead of 15 years and a 15% coupon rate per annum.
Subsequent extensions of dates and payment maturities meant that the remaining stock was reduced from ¢137.3 billion to ¢130 billion. However, the eligible bonds as per memorandum meant an exclusion of pension funds and bonds that were subject to swap mechanisms for monetary and exchange rate policy operations. This then brought the eligible bonds tendering to ¢97.75 billion. Out of the total eligible bonds for tendering, ¢83 billion ($ 6.7 billion) was successfully tendered-accounting for about 85% of outstanding eligible amounts and meeting the target 80% as expressed in the memorandum of the exchange.
Nevertheless, the ¢87 billion (64%) that were successfully tendered represent only 60% of the original outstanding debt stock of ¢137.3 billion. The strategy employed by the Government of Ghana to achieve full participation for the GDX was aggressive. Although there was some financial sector consultation on expanding the range of instrument offering prior to crafting the exchange, the debt transaction offer was unilateral with a ‘take‐it‐or‐leave‐it’ approach.
With voluntary participation of only 64% (GH¢87 billion, not underpinned by strong fiscal consolidation, it will not necessary to reverse the adverse fiscal dynamics and reduce the debt overhang that has plagued Ghana for the four years and it will be difficult to achieve Debt to GDP ratio of 55% in 2028.
2. DATA ANALYSIS USING THE NPV OF LOCAL BANKS HOLDING OF GOVERNMENT BONDS AND NOTES.
According to Ministry of Finance (2022), the total government bond and domestic notes value of ¢137.3 billion with the local banks allocated ¢50.6 billion (37%); Firms and Institutions, ¢34.73 billion (25.3%), retail and individuals, ¢22.3 billion (13.9%), Foreign investors, ¢14.83 billion (10.8%); Bank of Ghana, ¢13.73 billion (10%); Rural and Community banks, ¢1.92 billion (1.04%); Insurance companies, ¢1.2 billion (0.09%) and SSNIT ¢55million (0.04%) excluding Pension funds ¢7.69 billion (5.6%) and Treasury bills valued at approximately ¢26.25 billion.
From our data analysis showed that the impact of losses on bank balance sheets had been significant because government securities comprised a large share of bank assets. Any loss in value of government debt exposures had led to capital losses in financial institutions unless these have already been absorbed by provisioning and Mark-to-Market (MTM) accounting which for past years most banks were not applying the MTM.
These recent losses could be due to a combination of coupon or interest rate reduction, and maturity extension with below-market coupon rates of 19.3%. The capacity of the banking sector to absorb losses had been lower, as the banking sector capitalization only to place three years ago. When banks are able to absorb losses without having to resort to a recapitalization from the government, the fiscal consolidation and/or burden-sharing by other creditors required to restore debt sustainability would be smaller
From our data analysis using the Net Present Value of the government bondholding of ¢50.6 billion (37%) of the total bonds, then the private sector could face severe challenges in the area of provision of new credit and extension of existing credit as a result of liquidity and solvency crisis in the banking sector. The impact of a domestic debt exchange on 23 banks’ balance sheets (and their ability to provide credit to the economy) could be significant as the Ghanaian domestic banks are holding about 37% of government securities.
Any loss in value of government debt exposures will lead to regulatory capital impairment in banking institutions at the time of the restructuring unless these have already been absorbed by loan-loss provisioning and mark-to-market accounting which was never applied prior to the restructuring. Such reduction in the value of government debt portfolio could be due to any changes to the original contractual value of the debt security, such as coupon reduction from 19.3% to a weighted coupon rate of 9%, and maturity extension from 5 years to 15 years.
From the existing discount rate of 19.3 % with 5-year maturity period to the weighted average coupon rate of 9% new bonds with extended maturity period of 15 years, our data analysis showed estimated losses using Net Present Value of ¢41,315,326,692 would impact negatively on 23 banks’ solvency. For example, Bank B with bond holdings of ¢9,106,452,000, it is estimated that with discount rate of 19.3% using weighted coupon rate of 9% NPV estimated losses resulted in ¢7,435.494,850 from the total shareholders’ equity of ¢2,853,177,000 (December 2021), thus giving the negative net worth of GHC4,452,317,850 making the bank insolvent.
If the IFRS 9 is applied in stricter sense nine banks could be insolvent. From the data analysis only last six banks, R.S.T.U.V and W may not experience any capital losses while eight banks may experience mild capital losses. These losses could be due to a combination of coupon or interest rate reduction, and maturity extension with below-market coupon rates. From the data, the capacity of the banking sector to absorb losses are lower not where it is well capitalized to absorb the estimated losses from the debt exchange program.
Ghanaian banks will not be able to absorb losses without having to resort to a recapitalization from the government, or resorting the shareholders and banks for recapitalization quickly to mitigate the risk of bank failure and also protect the stability of the entire banking system and the economy. Capital shortfalls are more likely to emerge for a tail of weak banks like A, B, E, D, G, J, K and few others because of their higher share of exposure to government domestic debt relative to their capital.
With the estimated losses using the NPV of banks holding of government bonds, the domestic debt exchange could also have a negative impact on the capital adequacy ratio of banks. The conversion of short-term debt into long-term had increased the risk-weighted assets of the banks which could reduce their capital adequacy ratio. This could lead to decline in the financial stability of local banks and increase the risk of bank failures.
The decline in capital adequacy ratio would lead to a reduction in the overall financial stability of the sector. Though the Bank of Ghana as part of the domestic debt restructuring, announced a regulatory forbearance for banks, it is very important for shareholders and board of directors for banks to take steps to mitigate the negative impact of domestic debt exchange programme exercise on their capital in the balance sheets as their corresponding banks may not recognize the Bank of Ghana’s regulatory forbearance.
The government says it will pay outstanding coupons and principal on bonds that matured on February 6 and 13, 2023 in two days.
The government said in a statement issued by the Finance Ministry on Tuesday that the processes to settle payments of the outstanding bonds commenced on Monday, March 13, 2023.
“Holders of the afore-listed bonds should therefore expect to receive their payments within the next 48 hours,” it said.
The statement added that payment dates for subsequent maturities would be communicated in due course, as processing continued.
The Finance Ministry on behalf of the government thanked all stakeholders for their forbearance during the Domestic Debt Exchange Programme (DDEP) and subsequent administrative processes.
The government secured a Staff-Level Agreement (SLA) with the IMF last year and launched the DDEP to assure the Fund of creditors’ confidence to meet its debt obligation.
The DDEP is part of Ghana’s debt restructuring process, which is a prerequisite for the country’s $3 billion Extended Credit Facility (ECF) programme with the International Monetary Fund (IMF).
The DDEP officially closed on February 13, with the Government swapping a total of GHS83 billion worth of old bonds and subsequently announcing a similar process with its external creditors.
While much information has not been provided on the progress of the external debt restructuring, the Managing Director of the IMF, Kristalina Georgieva, said recently that the Fund was happy with the progress Ghana had made to present its SLA for the Fund’s review and approval
Thegovernment has announced that it will settle the outstanding principal and coupon on the bonds that were due on February 6 and 13, 2023, in two days.
The proceedings to settle payments for the outstanding bonds began on Monday, March 13, 2023, according to a statement from the government that was released by the finance ministry on Tuesday.
“Holders of the afore-listed bonds should therefore expect to receive their payments within the next 48 hours,” it said.
The statement added that payment dates for subsequent maturities would be communicated in due course, as processing continued.
The Finance Ministry on behalf of the Government, thanked all stakeholders for their forbearance during the Domestic Debt Exchange Programme (DDEP) and subsequent administrative processes.
The Government secured a Staff-Level Agreement (SLA) with the IMF last year, and launched the DDEP to assure the Fund of creditors’ confidence to meet its debt obligation.
The DDEP is part of Ghana’s debt restructuring process, which is a prerequisite for the country’s $3 billion Extended Credit Facility (ECF) programme with the International Monetary Fund (IMF).
The DDEP officially closed on February 13, with the Government swapping a total of GHS83 billion worth of old bonds and subsequently announced a similar process with its external creditors.
While much information has not been provided on the progress of the external debt restructuring, the Managing Director of the IMF, Kristalina Georgieva, said recently that the Fund was happy with the progress Ghana had made to present its SLA for the Fund’s review and approval.
TheDomestic Debt Exchange Programme (DDEP), which has undergone recent improvements, may present certain problems to Ghana’s economy, according to Mr. Joe Jackson, Director of Business Operations at Dalex Finance.
The scaling down to the DDEP and the manner of negotiations with external creditors, in his opinion, have had an impact on the attainment of debt sustainability, which was the most crucial problem for an agreement to be reached.
He fears foreign exchange crisis is in the offing for the country.
Speaking to Starr News, Mr. Jackson mentioned the reduction of the government’s expected 130 billion that has come down to 83 billion is a worry to the government meeting its targets.
“Each time there was an exemption, each time the rate was adjusted it increased the complexity of our debt sustainability challenges. So, scaling down the DDEP from what it was initially set at a 130 billion cedis to a final figure of 83 billion cedis meant that it will complicate our issues. That led us to now realize that there is a new haircut that we are expecting from the foreign bondholders that obviously complicates matters.
“And obviously, the rapid accumulation of the T. Bills debt which has now slowed dramatically was going to put us at risk. What really constitutes the issue is the deadline we have. I believe that the deadline was not imposed in a vacuum. The government realizes that it was only for so long that he can continue defaulting and have the market forgive them as long as they have.
He continued: “We haven’t paid a dime of our external debt since December. If we don’t get an IMF program soon, we are going to see shortages of foreign exchange. It will have an impact all across because we are a nation who imports everything.”
TheGhana Cedi has been branded a junk currency by a professor of applied economics at the John Hopkins University in the United States.
According to a tweet he posted on March 11, 2023, he has classified it as one of the currencies in his collection of rogue currencies.
According to Hanke, a serial critic of the government and its management of the Ghanaian economy, the cedi’s woes should be blamed on Nana Addo Dankwa Akufo-Addo’s incompetence and eceonomic mismanagement.
“In #Ghana, the #cedi is junk. By my measure, the cedi has depreciated ~49.77% against the USD since Jan. 1, 2022. Thanks to Pres. Akufo-Addo’s incompetence & economic mismanagement, the cedi has been entered into my rogue’s gallery of JUNK currencies,” his tweet read.
As of last Friday, March 10, 2023, the Interbank forex rates from the Bank of Ghana showed that the Ghana Cedi was trading against the dollar at a buying price of 11.0082 and a selling price of 11.0192.
At a forex bureau in Accra, the dollar is being bought at a rate of 12.20 and sold at a rate of 12.80.
Government run to the International Monetary Fund (IMF) in 2022 at a time the economy was in a downward spiral.
The government only recently secured a Domestic Debt Exchange Programme (DDEP), which according to experts is a major conditionality of the lender in granting Board approval for a US$3 billion bailout.
The programme was meant to ensure the streamlining Ghana’s unsustainable debt. Government announced an 85% participation rate.
Ghana is hoping to get the first tranche of the bailout by March this year in order to among others rein in inflation and arrest the galloping depreciation of the cedi.
Talks are currently underway with Ghana’s external creditors in a bid to restructure loans in order to get IMF Board approval in March 2023.
The Association of Ghana Industry (AGI) has expressed fears that financial institutions may not have enough liquidity to give them loans for their business operations.
The situation, they say, may lead to a slowdown of operations and increase unemployment.
The AGI’s concerns come as the Government secures about GHc83 billion from financial institutions and individual bondholders in its Domestic Debt Exchange Programme (DDEP), aimed at restoring market confidence and economic stability.
Mr Tsonam Cleanse Akpeloo, Greater Accra Regional Chairman, AGI, described the DDEP as a “necessary evil” for Ghana to secure the $3bn International Monetary Fund (IMF) loan-support programme.
However, Mr Akpeloo, who is also an Economist, feared that it would be difficult for industries to get access to funds, especially from banks, to support their operations as a result of the DDEP.
Speaking to the Ghana News Agency in an interview on Wednesday, Mr Akpeloo asked the Government to ensure that confidence in the financial sector was not eroded through the debt restructuring and the IMF programme.
“Our fear is that a lot of people may not be willing to save their money at the banks or pursue some of these government bonds. Because as it stands now, there’s little money in the system and when that happens, confidence in the financial sector will be eroded.
“The challenge would be that you will have few people sending money to the banks (who themselves use depositors’ and bondholders’ money), and they may not be in the position to give loans to industry. That will mean that our industry will begin to sink,” he said.
Mr Akpeloo noted that it had taken Ghana a long time to restore confidence in the financial sector, recalling past years when many people resorted to keeping their monies at home.
“For an exceptionally long time, people had to keep their money at their homes and it has taken a lot of work to build our financial system to this level. Our fear for this programme is that we may be going back to that situation where all the gains made in building confidence in the financial sector will be eroded.”
The Government, must therefore, make sure that even under the DDEP and the IMF programme, it safeguards confidence in the financial sector, he said.
Professor Godfred Alufar Bokpin, an Economist, institutions and individuals had sacrificed enough to enable the government to secure the GHc83bn under the DDEP to help in dealing with the economy difficulties.
He said the DDEP meant that “insurance companies have lost hugely, individuals, who sign up have also lost hugely, as such, the Government must also show much commitment in cutting down expenditure further.”
The Government in 2023 budget announced among other measures to cut down on government spending and boost revenue, the reduction of expenditure on appointees including salary freezes and suspension of housing, utilities and clothing allowances.
The measure also included a freeze on new tax waivers for foreign companies and a review of tax exemptions for the Free Zone, mining, oil and gas companies, as well as a hiring freeze for civil and public servants.
However, Prof Bokpin, said those measures were not enough, suggesting that considerations should also be made in reducing the size of the Government and the termination of Ex-gratia payments.
Dr Patrick Asuming, a Senior Lecturer at the University of Ghana Business School (UGBS), noted that the amount secured by the Government through the DDEP would provide some relief on finances.
“In terms of Government finances, it means that government gets some breathing space to be able to undertake some of its programmes and will enable the Government to get the IMF facility approved.”
Dr Asuming also urged the Government to be prudent with its expenditure, increase domestic revenue mobilisation efforts, and pay more attention to agriculture and the manufacturing sectors to change the structure of the economy.
TheMinority in Parliamentis again demanding that the Finance Minister, Ken-Ofori Atta resigns or be sacked from his post.
The group contends that the Minister’s incompetence has contributed to the economic crisis which has necessitated the Domestic Debt Exchange Programme (DDEP) for $3 billion in support from the International Monetary Fund (IMF).
The Minority caucus filed the vote of censure motion against the Finance Minister, accusing him of mismanagement of the economy, financial recklessness, conflict of interest, and gross mismanagement of the economy.
The censure motion failed during voting on Thursday, December 8, 2022, as the Majority caucus staged a walkout.
This was because only 136 legislators on the Minority side voted to demand the removal of Mr. Ofori-Atta thus falling short of the two-thirds constitutional requirement for the motion to pass through.
The proponents of the motion needed the votes of 183 legislators to have the motion passed against Mr. Ofori-Atta.
Reacting to a briefing on the DDEP by the Finance Minister in Parliament, some members of the Minority caucus, MP for Asunafo South, Eric Opoku and MP for North Tongu, Samuel Okudzeto Ablakwa called for the resignation of the Minister.
“Mr. Speaker, the Finance Minister ought to have resigned long time ago, our colleagues on the other hand [Majority caucus], share this view with us. They agree with us that the Minister is messing up the economy. We must rise up against the incompetence and recklessness of the Honourable Minister of Finance,” Eric Opoku reiterated.
Ablakwa also insisted, “what did the Jamaicans do? Immediately they ran their country into the ditch, the Prime Minister, Finance Minister, Governor of the central bank of Jamaica all resigned. This Finance Minister must go”.
Finance Minister, Ken Ofori-Atta, has reiterated the government’s commitment to protect and support banks operating in the country to aid the economic recovery effort.
“We are determined to protect banks operating in Ghana and strengthen their capacity to finance the economic recovery and growth we see before us,” the minister said when he addressed Parliament on the government’s Domestic Debt Exchange Programme on Thursday, February 16, 2023.
Mr. Offori-Attah said prudential measures are being employed to mitigate further impacts on the financial landscape and importantly on domestic creditors as government seal over 80 percent participation in its Domestic Debt Exchange Programme (DDEP).
“Billions of taxpayer’s monies were used between 2017 and 2019 to rescue the financial sector. We have no intention to imperil that work…Government is mindful of exchanges ramifications on the country’s financial health, as a result the government is developing several prudential measures to mitigate the potential impact on domestic creditors considering the need to preserve financial stability,” he said.
“In addition, a Financial Stability Fund is being established with the help of development partners to provide liquidity and solvency support to banks, fund managers and collective investment schemes to ensure that they are able to meet their obligations to their clients,” the minister added.
Members of the Pensioner Bondholders Forum, have expressed satisfaction with the announcement of the exemption from government’s domestic debt exchange program.
“I’m happy this is finally over and there will be nobody at the Ministry from tomorrow,” Convener of Pensioner Bondholders Forum, Dr Adu Anane Antwi, told Starr News after the Minister’s announcement in parliament Thursday.
The Finance Minister, Ken Ofori-Atta, has confirmed that all pensioners who refused to subscribe to the domestic debt swap after the deadline have been exempted from the programme.
Addressing Parliament on the state of the Domestic Debt Exchange Programme, Mr Ofori-Atta said the pensioners have nothing to worry about adding that all their coupons and principals will be honoured when maturity is due.
“Mr Speaker, Government remains committed to the well-being and dignity of our Senior Citizens and Pensioners. Indeed, it has personally caused me great distress as a number of them have picketed at the premises of the Ministry of Finance since Monday, 6th February 2023. As I have already indicated in my Press Release dated 14th February 2023, Government will honour their coupon payments and maturing principals, like all Government bonds, in line with Government’s Fiscal commitments.
“Mr Speaker, in seeking to understand the concerns of our Senior Citizens, I have met with them on three occasions. The most recent was yesterday 15th February 2022, where I explained the terms of the new bonds.
“Mr Speaker, I subsequently wrote to their Convener, letting him know that all pensioners who did not participate in the exchange are exempted and therefore there will be no need for our Senior Citizens to picket at the Finance Ministry. Mr Speaker, I would like to thank all those who helped in those discussions.”
The group has for the past few days pitched camp at the Finance Ministry for an hourly picketing exercise.
The protest which witnessed a number of top personalities including former Chief Justice Sophia Akuffo was in demand for total exemption from government’s completed DDEP.
The government has however expressed appreciation to Ghanaians for the success of the program.
“With great relief and immense gratitude, Government is pleased to announce that as of 14th February 2023, approximately 85% of bonds were tendered in the Exchange (as determined by the Central Securities Depository).
“On behalf of H.E. the President of the Republic, Nana Addo Dankwa Akufo-Addo, I wish to express our profound appreciation to the people of Ghana for their patience and support throughout these very challenging times. I also wish to extend our gratitude to the overwhelming number of bondholders who chose to participate in this all-important effort to pull the economy back from crisis,”
According to him, the debt exchange programme was voluntary and not compulsory.
He noted that “there has been no haircut in the successful execution of the debt exchange programme and it has remained voluntary from day one until now.”
The deputy finance minister linked the country’s current economic crisis to the COVID-19 pandemic and the Russia-Ukraine war.
He made the assertion when the finance minister appeared before parliament to present the details of the debt exchange.
John Kumah however reiterated that pensioners who did not sign on to the programme are exempted.
He further noted that the government will pay maturing coupons and the principals on bonds.
“As we speak today, about 85% of bonds have been migrated unto the new bond market,” while adding that the success rate has paved way for further negotiations to continue with the IMF.
Dr. Nyaho Nyaho-Tamakloe, a statesman and founding member of the ruling New Patriotic Party(NPP), has advised the finance minister, Ken-Ofori Atta to come up with a plan that will exempt pensioners from government’sDomestic Debt Exchange Programme (DDEP) since the retirees are not his age mates.
, “To Ken Ofori Atta, I will only say one thing, he must know that he is dealing with people who are not at all his age group.
“They are elderly folks, and like Sophia mentioned, he is not treating them with respect, and he should know the consequences,” he remarked on Happy 98.9FM’s Epa Hoa Daben show.
His remarks follow the country’s economic difficulties, which include the devaluing cedi, ongoing IMF negotiations, cuts in government spending and wages to free up funding.
Apart from pride, what else is stopping the Minister of Finance, Ken Ofori-Atta from responding to pensioner bondholders in writing on the status of their government bonds in relation to their call for an exempt in the Domestic Debt Exchange Programme (DDEP), the immediate past chief Justice, Sophia Akuffo has questioned.
To her, the pensioner bondholders have written to the Finance Ministry, asking for a total exempt from the government’s Domestic Debt Exchange Programme (DDEP) but as of now, they have not even received a note acknowledging receipt of their letter or a response in writing.
She questioned why other groups wrote letters to the Finance Ministry on a similar issue after the pensioners had sent theirs, but those groups have received responses and yet t
The Minister of Finance, Ken Ofori-Atta, has assured pensioner bondholders that government will not shortchange them. Rather, government will honour their coupon payments and maturing principals, like all government bondholders.
He told Parliament yesterday that the government remained committed to the well-being and dignity of the senior citizens and pensioners.
But the convener of the Pensioner Bondholders, Dr Adu Anane Antwi, in an interview with the Daily Graphic, prayed the government to walk the talk by honouring the various maturing dates of each of the bondholders, looking at the precarious financial condition of the country.
To him, the surest way for the government to remain afloat and honour its pledge was to cut down on the size of government to rake in more cash.
The Finance Minister was in Parliament to brief the House on the Domestic Debt Exchange Programme (DDEP) for the first time following the recent picketing at the ministry by protestors who want issuer exemption and not self-exemption.
The pensioners were also in the Public Gallery of Parliament in their numbers but many of them said they were not satisfied with the clarity on the policy. Some of them said the minister’s address appeared more of the presentation of the annual budget and government’s fiscal policy.
Distress
Appearing in his signature all-white apparel with extensive quotes from the Holy Bible, the Finance Minister said: “Indeed, it has personally caused me great distress as a number of them have picketed the premises of the Ministry of Finance since Monday, 6th February, 2023.”
Mr Ofori-Atta said the DDEP would also build momentum for the external restructuring programme, which had also commenced.
“As part of this process, Ghana has officially asked its bilateral creditors for a Debt Treatment initiative under the G-20 Common framework.
“Consequently, Ghana co-hosted a meeting with the Paris Club, including both Paris Club and Non-Paris Club creditors on January 10, 2023. We reiterated the request for expedited treatment under the Common Framework and presented our economic and fiscal outlook as well as the steps undertaken so far with the DDEP,” the Finance Minister said.
Breakdown
Breaking down the terms and the categories of the DDEP, the minister said it was well crafted to address the specific concerns of the different categories of holders under three groups.
Category ‘A’ is made up of Collective Investment Schemes and Natural Persons below the age of 59; Category ‘B’ – Natural persons 59 years old or older; and ‘C’ made up of General Category Holders, representing all other holders except those exempted.
According to Mr Ofori-Atta, the details of the results of the participation rate included Category ‘A’ holders issued 4,109 instructions and tendered an amount of GH¢5.93 billion.
That, he said, represented 6.06 per cent of the eligible bonds.
The minister said Category ‘B’ holders issued 1,340 instructions and tendered an amount of GH¢423.01 million, representing 0.43 per cent of the eligible bonds; while the General Category holders issued 4,489 instructions and tendered an amount of GH¢76.65 billion, representing 78.41 per cent of the eligible bonds.
Ramifications
Mr Ofori-Atta said the government was mindful of the exchange’s ramifications on the country’s financial health.
Mr Ofori-Atta indicated that as a result, the government was developing several prudential measures to mitigate the potential impact on domestic creditors, considering the need to preserve financial stability.
“Billions of taxpayer’s monies were used between 2017 and 2019 to rescue the financial sector. We have no intention to imperil that work and we are determined to protect banks operating in Ghana and strengthen their capacity to finance the economic recovery and growth we see before us,” the minister added.
Recalibration
The minister said the respective regulators had assessed the potential impact of the exchange on the financial sector.
“Working together, Bank of Ghana, the Securities and Exchange Commission, the National Insurance Commission, and the National Pensions Regulatory Authority are recalibrating their regulatory tools to accommodate the necessary forbearances for the respective sectors.
He said in addition, a Financial Stability Fund (FSF) was being established by the government, with the help of development partners to provide liquidity and solvency support to banks, pension funds, insurance companies, fund managers, and collective investment schemes to ensure that they were able to meet their obligations to their clients as they fell due.
Statements
Prior to the Speaker, Alban Sumana Kingsford Bagbin, allowing members to make contributions to the presentation by the Finance Minister, there were arguments between the Majority and the Minority side on the duration to be given each member to speak.
Insisting on going strictly according to Order 72, the Deputy Majority Leader, Alexander Afenyo Markin, said the Order insists on “brief comments” not exceeding one hour.
But the Minority Leader, Dr Cassiel Ato Forson, argued that since it was a monumental national assignment, each member should be given 10 minutes to speak, while the leaders were given 20 minutes.
However, in his ruling, the Speaker varied the rules to give six members from each side of the divide the opportunity to comment for eight minutes each, while the leaders speak for 15 minutes.
From the Majority side, the Leader, Osei Kyei-Mensah-Bonsu; the Deputy Ministers of Finance, Abena Osei Asare and Dr John Kumah, as well as the Deputy Minister designate for Trade and Industry, Dr Stephen Amoah; the Chairman of the Finance Committee, Kweku Kwarteng, and a Deputy Minister of Energy, Andrew Egyapa Mercer, were allowed to comment.
Those who spoke on behalf of the Minority side were the Minority Leader, Dr Forson; MP for Bolgatanga Central, Isaac Adongo; MP for North Tongu, Samuel Okudzeto Ablakwa; MP for Yapei-Kusawgu, John Abu Jinapor; the MP for Asunafo South, Eric Opoku, and the MP for Bawku Central, Mahama Ayariga. Setting the ball rolling from the Minority side, Mr Adongo said he felt very sad for the situation the pensioners were being taken through.
“These are senior citizens who have served our country faithfully to accumulate their pension. And when we are in crisis, the vulnerable are the ones that we prioritise. They are not the ones whose monies we should take,” Mr Adongo said.
The Bolgatanga Central MP said unfortunately, the pensioners were the ones the country was taking money from.
“Mr Speaker, are we no longer a proud nation? Are we suddenly no longer a proud nation that we are all over the place begging people we borrowed money from and telling them we can’t pay?” he asked.
Contributing to the debate, the Chairman of the Finance Committee, Kwaku Kwarteng, said the DDEP deployed by the government was good but was not enough to salvage the economy.
In the view of Mr Kwarteng, the state of the economy now would require more than a debt treatment, saying that “not only should we support the government to cut interest commitment that had burdened our economy, we must pursue an aggressive programme to rein in expenditure and we must do that not just for today but we must do that going forward,” he stated.
In cutting expenditure, he said, charity must begin from home and the Executive and MPs must lead by example.
Reinstate Fiscal Responsibility Regulation
The MP for Yapei Kusawgu, John Jinapor, said the Bank of Ghana, as of 2021, had advanced over GH¢40 billion to the government, a development the central bank issued a statement to claim that the advancement was an overdraft, a short-term debt instrument.
“Immediately the Finance Minister got GH¢40 billion, he announced that he had converted it into bonds,” he said, saying the move by the minister raised concerns about his credibility, Mr Jinapor said.
“That is the women and men who are old do not trust the minister because the President told us that there would be no haircut but it turned out to be false and Mr Ofori-Atta himself promised that individuals would not be part of the domestic debt instrument but on the eve of Christmas he issued a statement that he would exempt pensioners and he is now bringing individuals into the whole fray, which is a serious matter,” he said.
Urging Parliament to pass a resolution to compel the Finance Minister to exempt all pensioners from the DDEP, Mr Jinapor also appealed to the Speaker to reinstate the Fiscal Responsibility Regulation that was suspended to help avoid such economic crisis in future.
Unsustainable debt
Deputy Finance Minister, Abena Osei-Asare said the impression that the government was bent on taking people’s money was wrong. “Mr Speaker, the government is saying that I cannot continue to disburse or redeem the bonds that I have taken from you because of where we are now as our debt has become unsustainable,” she said.
She said the country’s debt became a national debt from the first day Ghana borrowed till date.
“Last year, we were servicing our debt until things started getting difficult, not as a result of domestic issues but also external issues, making Ghana use 70 per cent of our tax revenue to service interest payments alone,” she said.
Economic catastrophe
The MP for North Tongu, Samuel Okudzeto Ablakwa, said today Ghana, once a shining star in Africa, was the brink of “economic catastrophe, Armageddon and disaster” because of a Finance Minister who had betrayed the trust of the Ghanaian people.
He said at a time senior citizens, the aged and the vulnerable were bearing the brunt of economic mismanagement, the Finance Minister was urging the people to “rejoice in the Lord.”
“People who have served this country with distinction and they did not join their colleagues who left for greener pastures but stayed here to sacrifice and toil and reconstruct this nation but their pension are being taken away from them,” Mr Ablakwa said.
“They have to picket for days and the President has not even invited them to listen to them,” the MP said.
The MP forBolgatanga Central, Isaac Adongo, appears to be tired with the Finance Minister’s constant references to the Bible in his speeches to the country.
Ken Ofori-Atta appeared before Parliament on Thursday to brief the legislators about the government’s Domestic Debt Exchange Programme(DDEP) and as has become the norm, he concluded his statement with a quotation from the Holy Book.
But Mr Adongo would not have that today.
He questioned the moral grounds the Finance Minister had to throw the word of God at Ghanaians while taking their hard-earned money.
“As a country, we are not angry enough. This cannot happen to anybody. You are here reading this boring and underwhelming statement to us and yet you are taking our money.
“This is not a joke, you are even quoting the Bible. Which of the Bibles are you quoting? Quoting the Bible and taking our money? You are denying the poor pensioner his/her money and you are still quoting the Bible?” he quizzed.
The Bolgatanga Central lawmaker subsequently asked the Finance Minister to resign with immediate effect for mismanaging the economy.
“Resign! Resign right here in your statement to Parliament,” he was categorical.
Professor Ransford Gyampo, a Political Scientist, has called on the largest opposition party, National Democratic Congress (NDC) to proffer alternatives that will help Ghana achieve debt sustainability and come out of the current economic crisis.
He said as a government in waiting, it was important to offer credible alternatives to the current challenges with the Domestic Debt Exchange Programme (DDEP) and the economic crisis.
Prof Gyampo emphasised on the need for the opposition to make concerted efforts in ensuring that such alternatives were made public give some assurance to the citizenry.
He said: “Let the opposition also speak about alternative views that can be exploited to help in the debt exchange programme,” and urged the opposition to move beyond criticisms.
The Unionist, who was contributing to discussions on the DDEP on a local television station monitored by the Ghana News Agency also asked the Government to show enough commitment by sacrificing more to motivate others to do same.
Prof Gyampo said: “You cannot call for the people to sacrifice when government on their part is not sacrificing. That sacrifice will never happen,” adding that the programme should not be a stomach-directed approach.
On another platform, Madam Clara Beeri Kasser-Tee, a Vice Chairperson of the Centre for Democratic Development (CDD) Ghana, urged the Government to ensure that the DDEP was done in a way that would protect the vulnerable, including pensioners.
“We just can’t throw our vulnerable under the bridge, these are people who are old… We should be protecting our vulnerable in society rather than taking advantage of them because we think they don’t have what it takes to fight,” she said.
Prof Lord Mensah, an Economist, asked the Government to provide details on investor categorisation to aid in knowing, which persons would be significantly affected by the DDEP and to reduce the uncertainty among the populace.
“By this time the Finance Minister should have put data out there to indicate that these are the categorisation of bondholders by age, therefore if we exempt the pension holders then we are able to save about 10 per cent of what we are looking for and let us go with it,” he said.
Mr Habib Iddrisu, Second Deputy Majority Whip, said it had become necessary for everyone to also make some sacrifices to support the efforts of the Government to bring economic stability.
“I will urge the bondholders to sign onto the programme. Half a loaf is better than nothing. Where we are and what we look to achieve, we need to make a lot of sacrifices and help Government burden share,” Mr Iddrisu emphasised.
It has become necessary for the Government to restructure its debt with both domestic and external creditors in addition to other expenditure cuts as announced in the 2023 budget to ensure debt sustainability.
This is to help the Government to secure an Executive and Management Board approval from the International Monetary Fund (IMF) by the end of March 2023 for a $3 billion three-year loan-support programme.
Out of the 80 per cent of the GHS137 billion required for the domestic debt exchange programme, the Government has achieved about 70 per cent participation so far.
The President, Nana Addo Dankwa Akufo-Addo, has also assured that the Government: “Will successfully confront the difficulties, bring relief to the Ghanaian people, and return the economy back to the high rates of growth that characterised the management of our economy in the three years preceding the COVID-19 outbreak in 2020 and the Russian invasion of Ukraine.”
Individual bondholders in Ghana are intensifying pressure on the government to exempt them from the Domestic Debt Exchange Programme (DDEP) with a planned protest from 20th to 24th February 2023, to be held at Independence Square.
According to the bondholders, the government has yet to pay them over GH¢4 billion in interest and principal on which theFinance Ministrydefaulted.
In a letter to the ministry, they demanded payment of outstanding bonds that matured on February 6.
The government has assured that all coupon payments and maturing principals will be honoured in line with government fiscal commitments, according to a statement issued by the Ministry of Finance on 14th February.
“The Government would like to reassure all individual bondholders who elected not to participate that your coupon payments and maturing principals, like all government bonds, will be honoured in line with government fiscal commitments,” part of the statement read.
However, until this promise is fulfilled, the bondholders’ association has said it will continue with its protest plans.
A convener of the Association, Dr. Joel Akwetey, said: “If they [government] do [pays], this picketing will actually not come on. So we’re doing this in phases we expect between this week and next week – the 20th February, I would hear something favourable from the ministry, then we all rest easy.”
While some members picket at the Independence Square, a group of about 30 or 50 individual bondholders will be escorted to the Finance Ministry to present a petition.
Currently, the Pensioner Bondholders Forum is picketing at the Finance Ministry.
The Forum has urged the government to release a notice that confirms that pensioners’ funds will be excluded from the government’s Domestic Debt Exchange Programme (DDEP).
Also, Individual bondholders want to be exempted from the DDEP.
The government’s invitation to its Domestic Debt Exchange Program (DDEP), which closed on Friday, 10th February 2023, has received over 80% participation of eligible bonds, the Finance Ministry said.
Government insists on the implementation of the programme despite the concerns, and according to the ministry, this must be done “to help protect the economy and enhance our capacity to service our public debts effectively” in order to receive a credit facility worth $3 billion from the International Monetary Fund.
“The alternative of not executing the DDEP would have brought grave disorder in the servicing of our national debt and exacerbated the current economic crisis. The Government is, therefore, grateful for the overwhelming participation of all bondholders,” the ministry noted.
International Ratings agency, Fitch, has downgraded Ghana’s local-currency credit score to ‘restrictive default’.
The latest verdict comes on the back of the conclusion of the Domestic Debt Exchange Programme with Fitch Ratings describing the exercise as a distressed one.
Fitch further cited the “material reduction in terms vis-à-vis the original contractual terms and the fact that the exchange is needed to avoid a traditional payment default” as part of its reasons for the recent downgrade.
The agency in its latest statement on Ghana also placed the country’s long-term foreign currency IDR at ‘C’, which is the lowest score before default.
This verdict is due to Ghana defaulting on its local bonds and Eurobond coupon payments in January this year while Fitch has also cut the foreign-currency grade to ‘RD’ on the back of the grace period expiring on February 17, 2023.
Meanwhile, the government of Ghana on February 13, disclosed that over 80 percent of local bondholders signed unto the Domestic Debt Exchange Programme (DDEP).
The programme forms part of the requirement ahead of Ghana securing a Board-Level Agreement from the International Monetary Fund (IMF) for an amount of $3 billion financial bailout.
Apart from a lack of transparency, poor information flow, bad faith and poor treatment of creditor groups, a report put together by Banking Consultant Richmond Atuahene has also revealed that ministry of finance has been reactive instead of proactive with the domestic debt exchange programme.
The report says there are many instances of inconsistency and incoherence with the way the government has handled the whole process and its intended objective.
It said a critical review of the domestic debt exchange programme shows “it is not in line with the best principles for fair debt restructuring for emerging economies”.
“The strategy on the above has not been done properly by the Ghana government”, the report noted, adding: “The government has failed to inform Ghanaians [of] how much fiscal space the domestic debt exchange” — if implemented successfully — “will provide” and whether or not that space is “significant” for the duration of the programme.
“It has always been narratives; no figures have been attached to the domestic debt exchange programme”, the report observed.
An earlier publication by Morgan Stanley Investment Banking Group said it expects a cashflow savings of $7.2 billion between 2023 and 2028.
The debt exchange initiative will release approximately $1.2 billion each year in 2023, 2024, 2025, 2026, 2027 and 2028.
The report said “from our earlier research findings published from the data analysis using NPV [Net Present Value] of the debt exchange of the total PV of bond value of domestic banks, firms and institutions; foreign investors, the Bank of Ghana, retail and individuals, insurance companies, SSNIT and rural and community banks of ¢431.962 billion showed the estimated losses of ¢117.346 billion in NPV to local bondholders with maturity extension from five years to 15 years with an average coupon rate declining from current weighted average of 20.0% to weighted average rate of 9.0% for the 12 eligible new domestic bonds maturing with predetermined ratios of 9% from 2027 to 2031 and 8% from 2032 to 2038”.
“With an overall NPV estimated losses of 58%, banking sector losses including Bank of Ghana and rural and community banks amounted to ¢67.880 billion, a major factor for determining the capital needs of the banks”.
“Furthermore, it is estimated that losses of 35% using NPV of the 23 local banks could amount to ¢41.315 billion and it could impact negatively on both banks’ solvency and liquidity”, it added.
The report said the reform of the fiscal space in the DDEP never included the stricter compliance and enforcement of a Fiscal Responsibility Act 2018, Act 982, which strictly requires that the annual fiscal deficit does not exceed 5% of the GDP, as well as the implementation of a revamped tax administration programme and public sector transformation.
“The way the government has been handling the operationalisation has not been in line with the best practices of the fair debt restructuring for the emerging markets”, the report said.
“The strategy should have involved first making a convincing case to the market on the prospect of significant cost savings that would contribute to sustainable debt dynamics from voluntary par‐for‐par exchange of expensive bonds with low-coupon, longer-maturity instruments but this has not happened”, the report said.
It also noted that “good faith actions should be displayed by the debtor – Government of Ghana”, pointing out: “The Ministry of Finance has shown bad faith in dealing all creditors.”
The government has successfully swapped GH¢83 billion of its old cedi bonds for new ones under a domestic debt exchange programme (DDEP) that ended on February 10.
The amount is equivalent to about 85 per cent of the domestic debt stock, which totaled about GH¢118 billion – when pension fund holdings are excluded.
The government exempted the pension funds, whose holdings are about GH¢12.3 billion from the programme that extends repayment tenures and lowers the coupons.
It is a prerequisite to securing a US$3 billion support from the International Monetary Fund (IMF) to help stabilise the cedi, which lost more than 50 per cent of its value to the US dollar, in 2022 and arrest inflation that spiraled to 54.1 per cent last December.
One of the sources said some individual bondholders did not subscribe to the offer but said their holdings were insignificant.
Pensioner bondholders openly declined the offer, describing it as inimical to their investments interests, and their request for exemption was not heeded.
The successful conclusion of the DDEP paves the way for the government to open similar discussions with external creditors, with the view to bringing the debt stock to sustainable levels.
Government has expressed gratitude to Ghanaians for their patience and support shown to the Domestic Debt Exchange Programme (DDEP), which ended on Friday, February 10, 2023, with more than 80% of eligible bonds participating.
The Finance Ministry in a press release dated Tuesday 14 February 2023 and entitled “Participation in the Domestic Debt Exchange Programme”, noted that government is extremely impressed with and grateful for the high patronage the voluntary programme has received.
“The Government wants to thank the people of Ghana for their forbearance and support throughout these very difficult times” the press release signed by the finance minister; Ken Ofori-Atta read.
“The DDEP is being done to help protect the economy and enhance our capacity to service our public debts effectively. The alternative of not executing the DDEP would have brought grave disorder in the servicing of our national debt and exacerbated the current economic crisis.
“The Government is, therefore, grateful for the overwhelming participation of all bondholders. Your support and contributions have gotten your country much closer to securing the IMF programme” the finance minister’s statement further read.
Burden-sharing The finance minister in his statement further noted that even though the DDEP was a voluntary exercise, under the prevailing economic circumstances in the country and in the globally space, Government had to make “a strong but humble appeal to bondholders to participate in the DDEP;
“Seeing it as a very critical act of burden-sharing in the ongoing national effort to tackle the economic crisis, bring back macroeconomic stability and guarantee sustainable growth and prosperity for the people of Ghana”.
“Government in addition, offered alternatives to encourage individual bondholders and retirees to tender for the new bonds which will have wider secondary market circulation.
“The Government is grateful to those who took part in the advocacy in securing an improved offer for participants” the press release by Ken Ofori-Atta noted.
This was disclosed in statement by the ministry announcing the closure of the programme on February 14, 2023.
“The Government’s Domestic Debt Exchange Programme (DDEP) closed on Friday 10th February 2023 with over 80% participation of eligible bonds. The government wants to thank the people of Ghana for their forbearance and support throughout the very difficult times,” the statement said.
The ministry further emphasised that participation in the programme was voluntary and that the right of bondholders to self-exempt was never in doubt.
“However, under the circumstances, Government at the same time, always made a strong but humble appeal to bondholders to participate in the DDEP; seeing it as a very critical act of burden-sharing in the ongoing national effort to tackle the economic crisis, bring back microeconomic stability and guarantee sustainable growth and prosperity for the people of Ghana,” the ministry said.
While emphasising the significance of the exercise and the impact the economy would have felt if it was not undertaken, the ministry stressed that government’s commitment to honour payments to bondholders who elected not to participate in the exercise.
“We would like to stress that, all individual bondholders, especially our senior citizens should be rest assured that their coupon payments and maturing principles, like government bonds, will be honoured in line with government’s fiscal commitments,” the statement said.
With an economy under heavy stress from rising inflation, currency depreciation and ballooning national debt, the government of Ghana is looking at a US$3 billion International Monetary Fund loan for salvation.
The government in an effort to meet requirements to secure the IMF loan, introduced a debt restructuring programme.
The DDEP programme which aims to tackle government debt on the local front, sought to vary the terms of existing bonds.
The ministry at the commencement of the programme announced a target of 80% or more of bondholders.
The exercise, however, attracted resistance from several bondholders including some pensioners who took to picketing at the premises of the ministry demanding total exemption from the programme.
The Pensioner Bondholders Forum are expected to take their protest to parliament on Tuesday, February 14, 2023.
The Speaker suggested Tuesday, 14th February, 2023 for the briefing.
According to him, Parliament is ever prepared to help government to come out from the quagmire. Therefore it is necessary for the programme to be presented before the House.
“Honourable Members, my understanding is that both sides agree that the Minister be scheduled to come and brief the House on the policy statement and some details about the debt arrangement …Parliament has spoken that is the end of the case,” he said.
He added that pensioners picketing at the Finance Ministry make it an urgent matter.
This follows weeks of agitations by individual bondholders and pensioners who are all up in arms against the policy and urging the government to exempt them.
Prior to the directive, the North Tongu MP, Samuel Okudzeto Ablakwa and Bawku Central MP, Mahama Ayariga raised concerns on the floor insisting Parliament must approve of the details of the exchange programme before implementation.
According to Mr Ablakwa, he is disappointed that the programme was not added to the business statement for the week Parliament reconvened.
In light of this development, he called for the Minister to appear before Parliament.
“Mr Speaker, I appeal to you respectfully to instruct that the Minster for Finance appears before us, so that we have a full briefing, and we can debate this matter,” he pleaded.
The Bawku Central MP added that Article 181 clause 3 of the 1992 Constitution is clear that “this [DDEP] is borrowing on behalf of the state and section 55 and 56 of the Public Financial Management Act 2016 is also very clear that this is borrowing, adding that “the terms and conditions of the borrowing ordinarily must be laid before the House and must be approved by a resolution of this House.”
He stated that not only did the Finance Minister miss out on that, but he went ahead to define his own terms to negotiate with bondholders with terms and conditions that have not been approved by the House.
But, Deputy Finance Minister, Abena Osei-Asare responded to the concerns of the MPs.
She insisted that the broad policy underpinning the exchange programme has been approved by the House in the 2023 budget, but explained that the House had not been briefed because of the recess.
“Last week when we met the leadership of the Business Committee of the House, we mentioned that once Parliament comes through, we will come and brief the House on how far and steps that we have taken to get to where we are,” she added.
Despite this explanation, Speaker of Parliament Alban Bagbin directed Minister for Finance Ken Ofori-Atta to cause to be laid the details of the programme before the House and make a presentation on same to MPs.
The government’s Domestic Debt Exchange Programme (DDEP), which Ken Ofori-Atta has emphasized is crucial to the country receiving the $3 billion Extended Credit Facility from the International Monetary Fund, was updated during his talk (IMF).
Since the DDEP’s inception in December 2022, the government has had difficulty enlisting the necessary stakeholders to participate in the program and achieve the necessary standards.
This has since forced government to extend the deadline several times.
At that time, we indicated that the Debt Exchange Programme had been informed by the Debt Sustainability Analysis which revealed that:
Ghana’s public debt had become unsustainable; and that debt servicing accounted for more than half of total government revenues and almost 70% of tax revenues, while total public debt stock, including that of State-Owned Enterprises and statutory funds, exceeded 100% of our GDP.
3. The essence of the debt exchange, we indicated, was to help restore our capacity to service our debt and meet other expenditure obligations. I must say that these essential considerations have not changed. Indeed, they are even more pressing today.
4. Prior to this launch, in November 2022, I presented the broad contours of our economic and financial landscape and the necessary response measures as part of the 2023 Budget Statement and Economic Policy.
Response Programme and Immediate Outcome
Since then, three (3) significant developments have occurred to pave our path to economic recovery:
Parliament, after sustained engagements, judiciously passed the 2023 Budget; paving the way for the implementation of key revenue-enhancement and expenditure-consolidating measures.
Government, over the past several months, aggressively pursued revenue enhancement and expenditure rationalisation measures towards facilitating macroeconomic stability.
The Ministry of Finance worked assiduously with all stakeholders to reach a Staff Level Agreement (SLA) on the IMF programme, in record time. The IMF Programme is broadly aimed at assisting government to restore macroeconomic stability with a strong focus on protecting the most vulnerable in our society.
DEBT OPERATIONS
Ladies and Gentlemen, undergirding the budget and the SLA was the Domestic Debt Exchange Programme. Our strategy has been to work diligently and with urgency to restore macroeconomic stability; including bringing down inflation, and stabilising the Cedi. These are necessary measures to protect businesses and restore the purchasing power of Ghanaians, within the shortest possible time.
It was our expectation that collectively, we would have concluded the Domestic Debt Exchange Programme by the end of January, to anchor our effort to alleviate the debt burden in the most transparent, efficient and sustainable manner.
However, we admit that there were legitimate and critical concerns which needed deeper and broader consultations. The requisite efforts to address them have resulted in improved terms and changes in the closing date, with a final deadline of tomorrow.
Tomorrow, Tuesday, 7th February 2023, is the final deadline for institutions and individuals to sign up to Ghana’s Domestic Debt Exchange Programme.
As a listening Government, we have re-engaged all stakeholders, on a daily basis; sometimes even deep into the night. The Governor and I, and our teams are all thankful to the Ghana Association of Banks (GAB); the Ghana Insurers Association (GIA); the Ghana Securities Industry Association (GSIA); the Individual Bondholders Forum; and the Pensioner Bondholders Forum, for their interest, insights and goodwill.
11. Today, I am here to provide an update on where we are and to, once again, encourage the full support of all Individual and Institutional Bondholders.
Update on the DDEP
Distinguished Ladies and Gentlemen,
In December 2022, we invited all holders of Ghana’s Bonds to volunteer to exchange their holdings for New Bonds whose terms are compatible with our desired downward debt trajectory.
This invitation was within the context that, for Ghana to reach the required debt sustainability threshold of debt-to-GDP of 55 percent, it was important to review the interest rates and maturities of the existing bonds.
14. Having listened to and acknowledged emerging concerns, we have recalibrated the framework of the DDEP, with the following constituting the terms of the improved and enhanced offer:
All individual bondholders who are below the age of 59 years (Category A) are being offered instruments with a maximum maturity of 5 years, instead of 15 years, and a 10% coupon rate;
All retirees (including those retiring in 2023) (Category B) are being offered instruments with a maximum maturity of 5 years, instead of 15 years, and a 15% coupon rate.
15. The objective of this is to ensure that individuals, especially retirees, who put their hard-earned savings in our domestic market, are not left in hardship as a result of the DDEP and yet contribute to the resolution of our current crisis.
16. We have been intentional in pushing the threshold of what is possible, in order to:
i. Safeguard the well-being of our pensioners;
ii. Preserve the savings of individuals;
iii. Protect the working capital of businesses;
iv. Ensure the health and stability of our financial sector; and v. Restore macroeconomic stability.
17. Indeed, since the first announcement of the DDEP, the Government has engaged in good faith discussions and extensive stakeholder engagements with all groups, in order to reach a resolution that ensures an orderly path out of our economic challenges, anchored by a sense of community and empathy.
A New and Stronger Partnership
18. Ladies and Gentlemen, these significant amendments have enabled Government to reach an agreement with key major domestic creditor categories including banks, insurance companies, capital market players and foreign holders of domestic debt in relation to their participation in the DDEP.
19. Undoubtedly, the participation of the banks, insurance companies and the securities industry, under the enhanced DDEP is a significant milestone which represents a response to a call to national duty. It is a critical step to restore macroeconomic stability; accelerate Ghana’s economic growth under an IMF Programme; and leverage other international financial support.
20. On the back of these recent developments, the comprehensive agreement with the key stakeholders, and the enhancement of the DDEP, Government:
Expects the full participation of institutional stakeholders and mobilization of all qualified investors, to ensure the success of the debt exchange operation; and Encourages eligible Individual Holders to voluntarily tender their holdings.
21. Frankly, non-participation or a lower-than-expected turnout for the DDEP will prolong efforts to resolve the current economic crisis. In addition, the prospects of international financial support and other financial assurances would be jeopardised. This development could further put strain and stress on the Government’s capacity to honour key commitments. This is not what we want for our economy.
22. What we want is an economy that is back on track, stable, vibrant, productive, dynamic; meeting the needs of individuals, households, and enterprises; delivering shared and inclusive growth; and improving incomes and livelihoods.
Conclusion
23. Ladies and Gentlemen, tomorrow is the final deadline for this programme and we are hopeful that all domestic investors will participate.
24. Let me restate that, as a government, our singular motivation for taking this rather difficult road is to restore macroeconomic stability, achieve debt sustainability and get the economy fully back on track. We know that these are necessary pre-conditions for creating jobs; safeguarding and enhancing incomes; fostering inclusive growth; and restoring hope to Ghanaians.
25. Through collective hard work and discipline, coupled with the abiding and abundant grace of the Almighty God, we have been focused on avoiding a full-blown economic crisis.
26. Indeed, the Grace of God assures us that “Surely there is a future, and your hope will not be cut off.” Proverbs 23:18 ESV
27. Our remarkable progress with the ongoing International Monetary Fund Programme is a significant boost to our recovery efforts. Continuous progress will steer us further away from the slippery precipice we recently faced. Therefore, the momentum must be sustained.
28. Considering the importance of a sustained economic recovery backed by an approved IMF programme in the first quarter of 2023, it is crucial for groups and individuals to consider the merit of the enhanced DDEP, as well as the need for economic stability; and sign up by tomorrow to make it a successful one.
29. Let every Ghanaian be encouraged that the DDEP will bring us to a place of stability, economic recovery and transformational growth. We must do this together.
30. Government on its part is resolved to continue to undertake all necessary fiscal adjustments that would ensure that our sacrifices will pay off and the collective good is upheld. Let each and everyone play their part.
31. These are difficult times, no doubt, but if we hold on together, we can and we will emerge from this more resilient and more united than before. Then we shall, together, continue rebuilding our economy again; enable businesses to thrive again; and bring back hope and cheer to our homes again.
32. Let us all speak one language: Boa me na men boa wo; and we shall then prevail and recover all. Let’s do this together!
33. God Bless Ghana, and make her great and strong!
The government has created the voluntary Domestic Debt Exchange Programme (DDEP) to address its domestic debts in order to achieve this. Additionally, it has proposed other steps, such as having the nation join the Paris Club to address its international debts (to have the foreign debts delayed or forgiven).
With the DDEP, the government is seeking to restructure approximately GH¢137.3 billion of the domestic debts it accrued through bonds it issued, including the E.S.L.A. Plc and Daakye Trust Plc, and per the requirement of the IMF, 80 percent of the country’s total debts must be subject to this debt exchange programme.
However, the government has been struggling to get the needed stakeholders to sign up for the DDEP to meet the required standard and has extended the deadline for the programme several times.
This article looks at the different times the government has had to extend the deadline for participation in the DDEP and the new offers it made to bondholders.
This announcement was in line with the government’s debt sustainability analysis, as contained in the 2023 budget he presented to Parliament on November 24, and it gave entities up to December 30, 2022, to indicate their participation in the programme.
The minister laid out, among other things, the exchange of existing domestic bonds with four new ones, as well as their maturity dates and terms of coupon payments.
Under this initial offer, for bondholders with bonds maturing in 2023, the government promised four new bonds that were expected to mature in 2027, 2029, 2032, and 2037, and 0% interest in 2023, 5% interest in 2024, and 10% interest in 2025, which will continue till the maturity of your bond.
Initially, the government stated that the programme would affect securities dealers and funds, private banks and investment companies, insurance schemes, pension funds, and non-resident investors, but not individual bondholders.
First extension from December 30, 2022, to January 16, 2023
After fierce resistance from trade unions about the inclusion of pension funds in the DDEP and the lack of enough voluntary participation, the government announced the extension of the voluntary participation in the programme to January 16 with the following modifications:
• Offering accrued and unpaid interest on Eligible Bonds and a cash tender fee payment to holders of Eligible Bonds maturing in 2023;
• Increasing the New Bonds offered by adding eight new instruments to the composition of the New Bonds, for a total of 12 New Bonds, one maturing each year starting January 2027 and ending January 2038;
• Modifying the Exchange Consideration Ratios for each New Bond. The exchange consideration ratio applicable to Eligible Bonds maturing in 2023 will be different from other Eligible Bonds;
• Setting a non-binding target minimum level of overall participation of 80% of the aggregate principal amount outstanding of eligible bonds; and
• Expanding the types of investors that can participate in the exchange to now include individual investors
Second deadline extension from January 16, 2023 to January 31, 2023:
The government on Monday, January 16, extended the deadline for DDEP to Tuesday, January 31, 2023, after resistance by some of the stakeholders involved in the programme, particularly individual investors whom the government promised not to include in the programme.
A press release on the development, issued by the Public Relations Unit of the Finance Ministry, announced some modifications by the government on the invitation to the exchange, including;
Offering accrued and unpaid interest on Eligible Bonds and a cash tender fee payment to holders of Eligible Bonds maturing in 2023;
Increasing the New Bonds offered by adding eight new instruments to the composition of the New Bonds, for a total of 12 New Bonds, one maturing each year starting January 2027 and ending January 2038;
Modifying the exchange consideration ratios for each New Bond. The exchange consideration ratio applicable to Eligible Bonds maturing in 2023 will be different than for other Eligible Bonds;
Setting a non-binding target minimum level of overall participation of 80% of the aggregate principal amount outstanding of Eligible Bonds; and
Expanding the types of investors that can participate in the exchange to now include individual investors.
Extension of deadline from January 31, 2023 to February 14, 2023
The government had to once again extend the deadline for voluntary participation in the DDEP to February 14, 2023, from January 31, 2023, citing its latest offer to individual bondholders.
Even though this time around a lot of groups, including banks, have agreed to participate in the programme, the government still wants to include individual bondholders.
The latest offer includes the exchange of instruments with a maximum maturity of 5 years instead of 15 years and a 10% coupon rate to individual bondholders below the age of 59 to encourage them to participate in the DDEP.
Additionally, all retirees (including those retiring in 2023) will be offered instruments with a maximum maturity of 5 years instead of 15 years and a 15% coupon rate.
The current deal has, however, been rejected by individual bondholders. The individual bondholders, who are pensioners, picketed at the Ministry of Finance on Monday, February 6, 2023, to demand that the government exclude them from the DDEP.
A physician and financial adviser, Dr. Yaw Perbi, cried while discussing how the government’s Domestic Debt Exchange Programme (DDEP) has damaged him.
According to him, he sacrificed student loans and some entertainment among others just to gain principal to buy government bonds.
“We sacrificed student loans and some entertainment among others. And now, those who were just blowing their money are laughing at us. They’ll be saying ‘you should have chopped the money’,” he said on Monday.
Dr Yaw Perbi said he convinced many of his friends who are health practitioners in the country to invest but he is now pained things have turned out like this.
“Part of the reason I came here was to let the several tens and thousands of people who have invested to know that this is not a Ponzi Scheme. They did the right thing.
“I am trying to convince myself that I did the right thing, I did not leave them to go and throw themselves over a cliff. We did the right thing but our leaders have not done the right thing by us and they need to be called out on it,” myjoyonline.com quoted.
Background:
The only hurdle to the government of Ghana getting the $3 billion it is seeking from the International Monetary Fund appears to be the government’s inability to prove to the Fund that its debts are sustainable.
To do this, the government has come up with the voluntary Domestic Debt Exchange Programme (DDEP) to deal with its domestic debts. It has also come up with some measures, including the country joining the Paris Club to deal with its international debts (to have the foreign debts delayed or forgiven).
With the DDEP, the government is seeking to restructure approximately GH¢137.3 billion of the domestic debts it accrued through bonds it issued, including the E.S.L.A. Plc and Daakye Trust Plc, and per the requirement of the IMF, 80 percent of the country’s total debts must be subject to this debt exchange programme.
However, the government has been struggling to get the needed stakeholders to sign up for the DDEP to meet the required standard and has extended the deadline for the programme several times.
President Akufo-Addo claims that even though the government’s debt swap program had a number of difficulties after being announced, the general public has generally accepted it.
When German Federal Minister of Finance Christian Lindner paid him a visit at the Jubilee House on Friday, he let him know about it.
“We have already taken one important step forward in concluding a staff-level agreement with the IMF. One of the steps was the domestic debt exchange programme which encountered a lot of difficulties, but it has now been virtually concluded…We are now looking towards going the full hog and concluding the agreement. We’re hoping that will be done by the middle of March,” President Akufo-Addo said.
He also called on Germany to encourage China, an ad hoc member of the Paris Club to support Ghana’s debt restructuring efforts.
This, he said, will enable Ghana to restore economic growth.
It would be recalled that the International Monetary Fund (IMF) on Tuesday, December 13, 2022, reached a staff-level agreement with Ghana on economic policies and reforms to be supported by a new three-year arrangement under the Extended Credit Facility (ECF) of about US$3 billion.
According to the IMF, the authorities’ strong reform programme is aimed at restoring the macroeconomic stability of Ghana’s economy.
An IMF team led by its Mission Chief for Ghana, Stéphane Roudet, said Ghanaian authorities have launched a comprehensive debt operation by way of restoring the country’s public debt sustainability.
Ghana has over the past five months run to the International Monetary Fund (IMF) for a financial bailout after the local economy took a nosedive and has been in an unsteady position since.
The local currency – Cedi – on the other hand, depreciated against major trading currencies which led to the suffering of businesses or a large extent, the collapse of some as they struggled to remain in business.
Government implemented some measures to ensure that the Cedi was strengthened to compete against major trading currencies, especially the US dollar.
The group claims that attempts to have their investment excused from the program have failed, which is why they have decided to picket outside the Finance Ministry until their requests are granted.
“We have as of today not been granted the exemption we requested. To further press home our request, we have notified the Police that about 50 of our members intend to converge at the premises of the Ministry of Finance on every working day from 10 am-11 am, beginning from Monday 6th February 2023 till our request is granted by the Minister.”
The deadline for the government’s Domestic Debt Exchange Programme has been set for Tuesday, February 7, 2023.
Member of Parliament for Tamale North, Alhassan Suhuyini, has taken a swipe at his colleague MP for Ejisu, John Kumah, over some comments the latter made over the Domestic Debt Exchange (DDE) programme.
Suhuyini said it was unjustifiable that Kumah will ask bondholders who are stiffly opposing portions of the DDEP not to be emotional about discussions on the matter.
He holds that the government through such comments and posturing does not do itself any good to the extent that they have created the economic mess that the country is in and must be more diplomatic with the people who are supposed to shoulder a burden they did not create.
“That I shouldn’t be emotional about that money that I have sweated to earn. Don’t tell me not to be emotional. And like I said, I don’t know John Kumah to be stupid, he is my friend, he is not stupid but the comment is silly, it’s stupid, it’s stupid.
“Don’t tell people who are about to lose their money, they are about to pay for your indebtedness,” Suhuyini charged during an in-studio interview on Accra-based Power FM (February 2).
He likened the DDEP to a person going to borrow money that they are unable to repay, so, they approach someone to help them settle the debt yet you are being bossy about the issue.
“The language you will use to get me to pay that debt is not the language that our government is using,” he said adding that posture of government wreaked “arrogance, and that for me is worrisome. It is not even what they say but what they project,” he added.
What John Kumah said:
Kumah, a deputy Finance Minister earlier this week clashed with one of the leaders of the individual bondholders forum on a radio discussion.
He accused Senyo Hosi of engaging in emotions and politics at a time the country needed none of that to get out of the current economic crisis.
“It becomes very difficult to engage in public discussions on emotional topics like the debt exchange programme. But I am particularly disappointed in my brother Senyo Hosi because we go way back and I didn’t expect this contribution from him. For him to attack me and call me dishonest and miseducating the public.
“It is very unfortunate for him to come being emotional and talking politics rather than the issues we’re discussing.
“I am a politician and I can go very political but that is not why we are here, we are trying to encourage people to understand what is going on and what is best for everybody,” he is quoted by myjoyonline.
After three extensions, the final deadline to subscribe unto the DDEP has been pegged at February 7, 2023.
With the industry’s umbrella organization, Ghana Association of Banks (GAB), agreeing to engage in the Programme, the Bank’s action, in conjunction with the GFSF, will minimize possible risks to the banking sector as a result of banks’ participation in the planned DDEP.
Aside from the GFSF, all the financial sector regulators will deploy regulatory and supervisory tools that mitigate risks to financial stability on the back of the DDEP.
Responding to a question at a press briefing following the 110th Monetary Policy Committee (MPC) meeting, the Governor said: “The GFSF is to be supported by the donor partners and is already capitalised at US$ 1 billion – with the World Bank pledging to support it with about US$250million. At theBank of Ghana, we have our own liquidity arrangements already with the banks and do not plan to be part of the Ghana Financial Stability Fund, which is mainly financed by external development partners”.
He assured that banks are fairly capitalised, some of which hold capital in excess of the regulator requirement; however, those impacted by the DDEP will be given enough time to recapitalise.
There are emerging signs that current macroeconomic conditions are spilling over to the banking sector. Profitability levels have declined alongside other financial soundness indicators. The central bank’s latest macro-prudential risk assessments indicated increased pressure on the solvency and liquidity of banks ahead of the DDEP implementation.
The industry’s Capital Adequacy Ratio (CAR) declined to 16.6 percent, but remained above the prudential minimum of 13 percent as at December 2022 from 19.6 percent in December 2021 – attributed to losses on mark-to-market investments, increase in risk-weighted assets of banks from the high growth in actual credit, and the price effect of Ghana cedi-depreciation on foreign currency-denominated loans.
The sector’s profitability indicators – namely the return-on-equity and return-on-assets – also declined during the period, in line with declining profit after tax and profit-before-tax respectively. The non-performing loans (NPL) ratio however improved to 14.8 percent in December 2022 compared with 15.2 percent in December 2021, on account of high credit growth relative to the increased stock of NPLs between the two periods.
Dr. Addison noted that to moderate any potential impact on the sector, the Bank has some regulatory reliefs for banks to help preserve financial stability.
“We don’t think that the forbearance measures in place will compromise the financial sector’s stability. Our banks are fairly well capitalised; as you know, most of them were holding capital in excess of the requirement. And we think those which fall slightly below the requirement will be given enough time to recapitalise; that should not compromise the integrity [of the financial sector].
“Besides that, there are backstops; both the GFSF and central bank will be there to support the system. So, I do not see any issues in terms of compromising the financial sector’s integrity,” the Governor said.
Total banking sector assets increased to GH¢221billion, representing an annual growth of 22.9 percent in December 2022 compared to growth of 20.4 percent a year earlier. Total deposits ended the year at GH¢157.9billion, representing an increase of 30.4 percent in 2022 relative to growth of 16.6 percent in 2021.
Credit continued to increase, recording growth of 30.2 percent to GH¢70.0billion from GH¢53.8billion in December 2021. Total investments, on the other hand, contracted by 4.8 percent to GH¢79.2billion in December 2022 relative to 29.0 percent annual growth in 2021, as banks rebalanced asset portfolios in response to the Domestic Debt Exchange Programme.
Senyo Hosi, the convener of the Individual Bondholders Forum (IBF), claims that the government’s improved terms for the Domestic Debt Exchange Programme are significantly better.
Mr. Hosi explained that the revised terms of the programme are an improvement from what was originally tabled by the government.
The government further extended the deadline for the programme to February 7, 2023, following the expiration on January 31, 2023.
This follows the agreement government reached with the Ghana Association of Banks (GAB), Ghana Insurers Association (GIA), and the Ghana Securities Industry Association (GSIA).
Government says a revised and final Exchange Memorandum will be released by February 2, 2023.
Speaking on the Eyewitness News, with Umaru Sanda Amadu, Mr. Hosi noted that, “Well this is not what we asked for or not, the consensus we reached with government was that it was going to make an offer to individuals. And then we can make an assessment, the process remains voluntary.”
“Subject to how the offer may work for you, you may accept it. If you don’t accept it, government will still honour its own obligation to you. When you look at the offer currently, it’s a massive improvement from what was originally on the table”.
The revised terms, he noted, “for the pensions fund, you will just be losing about 15% as against the original one of 50%, so it depends on how it works for you, it may be good. Another thing you may be looking at is your market expectations. You may be looking at a market act where the rate could really crash. When that happens the secondary market will give you a very good yield, and you may be able to exit. But these are decisions everybody would have to take”.
A statement from the Finance Ministry on January 31, 2023, noted that a number of “developments have necessitated the final extension of the deadline from 31st January 2023, to Tuesday 7th February 2023, and a new settlement date of Tuesday 14th February 2023 that will be confirmed via the new Exchange Memorandum”.
Stakeholders were awaiting the government’s next move given the agreements it recently reached with groups of individual bondholders and players in the banking and insurance industry.
The extension of the deadline for the debt exchange will make room for some finalised terms with subscribers of the programme.
The revised terms are as follows:
a. An affirmation that all individual bondholders are free not to participate;
b. However, upon a successful DDEP there will be very few of the ‘old bonds’ in circulation, and likely limit its tradability;
c. In this regard, the Government is pleased to make available the following alternative offer to encourage all individual bondholders to participate in the Exchange:
i. All individual bondholders who are below the age of 59 years will be offered instruments with a maximum maturity of 5 years, instead of 15 years, and a 10% coupon rate;
ii. All retirees (including those retiring in 2023) will be offered instruments with a maximum maturity of 5 years, instead of 15 years, and a 15% coupon rate.
Additionally, discussions are being finalised with Organized Labour and Pension Fund Trustees, on a separate arrangement in accordance with the Memorandum of Understanding signed with Organized Labour on 22nd December 2022, and in line with government’s debt management Programme.
With this, Government encourages all stakeholders to participate in the DDEP, an essential step towards meeting our debt sustainability targets and restoring macroeconomic stability and economic growth.
These developments have necessitated the final extension of the deadline from 31st January, 2023, to Tuesday 7th February, 2023, and a new settlement date of Tuesday 14th February, 2023 that will be confirmed via the new Exchange Memorandum.
The Government appreciates the cordial engagements with the various stakeholders since the beginning of the DDEP, that have made such remarkable progress possible.
“All bondholders are hereby encouraged to commence all administrative processes towards their participation in the Exchange, in line with the agreements reached”, the statement concluded.
