Nigeria’s West African neighbour, Ghana has asked its local bondholders to exchange their existing bond instruments for new ones that will be maturing in 2027, 2029, 2032, and 2037. In doing this bondholders will have to forgo interest payments.
This was revealed in a speech by the Ghanaian Finance Minister Ken Ofori-Atta. According to him the decision to exchange the bonds was the outcome of the debt sustainability analysis which was concluded.
Ghana faces a fiscal and currency crisis that has resulted in its inability to service its local and foreign debts without challenges. Its bond yields once rose to as high as 33% before they declined to around 25%.
What the Minister is saying: In a speech last night, the finance minister offered a restructuring of its local debts while also promising to present a plan to restructure its external debts “in due course”.
- “In the Budget Statement presented to Parliament on November 24th, I announced that government will undertake a debt operation programme. The broad contours of the Debt Sustainability Analysis has been concluded and I am here this evening to provide some details on Ghana’s Domestic Debt Exchange which will be launched tomorrow. External debt restructuring parameters will be presented in due course.”
- “Under the Programme, domestic bondholders will be asked to exchange their instruments for new ones. Existing domestic bonds as of 1st December 2022 will be exchanged for a set of four new bonds maturing in 2027, 2029, 2032 and 2037. The annual coupon on all of these new bonds will be set at 0% in 2023, 5% in 2024 and 10% from 2025 until maturity. Coupon payments will be semi-annual.”
- “Our commitment to Ghanaians and the investor community, in line with negotiations with the IMF, is to restore macroeconomic stability in the shortest possible time and enable investors to realize the benefits of this Debt Exchange.”
The news has spooked investors, many of whom took to Twitter to comment on the move by the Ghanaian government.
- A Twitter user Joseph Anya tweeted “a testament of where excessive debt can lead a country to”
- Another user @zambianyouthh tweeted, “imagine being an investment manager for a country and you invested tax payers’ money in Ghana. It’s not surprising that offshore investors are now not re-investing in African bonds after maturity”
- One user @Bretuobakweku tweeted at the IMF “@IMFAfrica why on earth will u entrust another loan in the hands of same guys who messed up the economy ?? The very finance minister who spearheaded this economic melt down is at post and u just wanna increase our debts again ?? Please don’t save us , allow us drown “
Ghana also insisted that while the bonds will be restructured they insisted that there will be “no haircut” meaning that the value of the bonds remain the same for bondhoders and they will not incure losses on the principal amount on the bonds.
- “Treasury Bills are completely exempted and all holders will be paid the full value of their investments on maturity.”
- “There will be NO haircut on the principal of bonds.”
- “Individual holders of bonds will not be affected.”
- The Government recognizes that our financial institutions hold a substantial proportion of these bonds. As such, the potential impact of this exchange on the financial sector has been assessed by their respective regulators.
Reports suggest the the impact of this decision will be felt by Ghanian banks and retial investors most of whom hold over 30% of the country’s local debt. The minister also attempted to allay the concern of banks who will likely book losses on the loss of interest income emanating from the decision.
- “Working together, these regulators have put in place appropriate measures and safeguards to minimize the potential impact on the financial sector and to ensure that financial stability is preserved.
- Specifically:
– The Bank of Ghana, the Securities & Exchange Commission, the National Insurance Commission, and the National Pensions Regulatory Authority will ensure that the impact of the debt operation on your financial institution is minimized, using all regulatory tools available to them.
– A Financial Stability Fund (FSF) is being established by Government with the help of development partners to provide liquidity support to banks, pension funds, insurance companies, fund managers, and collective investment schemes to ensure that they are able to meet their obligations to their clients as they fall due.
Heavenly help: The current Ghanian leadership have often resorted to the divine for help as they seek help for their challenges.
- “We are confident that these measures will contribute to restoring macroeconomic stability. With your understanding and support and that of the entire investor community, we shall overcome our current difficulties, and with the help of God, put our economy back on the path of renewed and robust growth.
As 1st Samuel 30:19 says, nothing was missing, small or great. I say to you, nothing will be lost, nothing will be missing, and nothing will be broken. We will, together, recover all. Thank you and God bless our homeland Ghana.”
