Pension funds should support private sector
The private sector is identified as the engine of economic growth and job creation in any economy.
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The sector is recognised as a means to accelerate the rapid industrialisation desired by developing countries.
In Ghana, the private sector contributes over 80 per cent of jobs and also significantly to the country’s gross domestic product (GDP).
In spite of its role, over the years, the sector has been starved of the much needed resources to enable it to function sustainably.
The number one resource needed to unlock the full potential of the private sector is the availability of long term pension funds that will enable businesses to grow, expand and employ more people.
All over the world, the pension funds industry, due to its nature, plays a crucial role in this regard by allocating a significant percentage of the funds to the private sector to drive economic growth.
The situation is, however, different in Ghana as a huge percentage of the country’s pension funds are invested in government bonds, denying the private sector of the much needed capital to grow and expand.
Almost 90 per cent of pension funds in Ghana are invested in government bonds compared to the developed countries where less than 40 per cent of those resources are invested in government securities.
This is because the industry has been under the notion that government securities are risk free and hence they continue to pile up their investments in those securities
However, the recently concluded domestic debt exchange programme (DDEP) and the collapse of the SVB Bank in the US due to mark-to-market losses from risk-free securities underscore the fact that government securities are not risk free and are subject to market price volatility.
The Daily Graphic, therefore, believes the DDEP must be a wake-up call that financial institutions cannot continue to pile up their investments in government securities with the assumption that they are risk free.
The paper, therefore, adds its voice to calls for pension fund managers to stop funding the government and channel their resources into the private sector.
Pension fund managers must rethink the way they allocate capital as asset holders.
An economy is as strong as its businesses and the country must, therefore, critically examine the role of pension funds in efficiently allocating capital.
The practice of mobilising capital for the government at the expense of the private sector is inimical to national development and must be stopped.
Going forward, the Daily Graphic believes the industry must take the necessary steps to reverse the flow of capital from the government to the private sector as soon as possible.
The key resource needed to activate the economic growth needed is capital which the pension fund managers are rather giving to government.
However, for the country to be able to fully harness the potential of the pension funds industry, some of the existing guidelines that regulate the industry must change.
And this is where the regulators must come in.
The Daily Graphic calls on the Securities and Exchange Commission, together with the National Pensions Regulatory Authority, to make further changes to the investment guidelines and increase the investment ceilings on other asset classes as the current ceiling is skewed heavily towards government securities.