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Debt payment suspension: It’s wrong  signal to  investors — Prof. John Gatsi
Ken Ofori-Atta — Minister of Finance

Debt payment suspension: It’s wrong signal to investors — Prof. John Gatsi

The government’s decision to suspend the payment some of its debts will send wrong signal to the investor community, the Dean of the School of Business, University of Cape Coast, Professor John Gatsi, has warned.

He also noted that the move by the government did not make the country trustworthy, a development that could also negatively impact what could have been a positive omen after the country had secured an International Monetary Fund (IMF) bailout.

“Note that after the IMF deal, there are other positive avenues that the government could explore to raise funds but with this action, there is the possibility that the investors or the sources from where we will raise funds will look at us with a different eye and that is not good for us,” he said in an interview with the Graphic Business shortly after the government released a statement announcing its intentions to suspend the payment of selected external debts.

Prof. Gatsi explained that the loans the government contracted through the floating of Eurobonds, among others, had clear timelines for repayment, legal and other contractual obligations and, therefore, any variations or delays constituted mistrust “and there is a price to pay for that action”.

He said much as the country might not encounter the consequences in the short term, the negative impact might be felt in the medium to long term.

Prof. Gatsi said the country could further sink deeper into a junk status, a development that could further worsen its creditworthiness.

Debt suspension

The government announced yesterday that it was suspending all debt service payments under certain categories of its external debt, pending an orderly restructuring of the affected obligations.

In a statement, it said: “This suspension will include the payments on our Eurobonds; our commercial term loans; and on most of our bilateral debt. This suspension will not include the payments of our multilateral debt, new debts (whether multilateral or otherwise) contracted after December 19, 2022, or debts related to certain short-term trade facilities.”

“We are also evaluating certain specific debts related to projects with the highest socio-economic impact on Ghana, which may have to be excluded. This suspension is an interim emergency measure pending future agreements with all relevant creditors.”

The statement said the government stood ready to engage its external creditors to make Ghana’s debt sustainable through a fair, transparent and comprehensive debt restructuring exercise in line with international best practices, adding that “The Ministry of Finance will hold an investor presentation at a date to be announced at a later stage.”

Reasons for suspension

The government in the statement explained that the country was today faced with a major economic and financial crisis and its attendant social challenges.

It said: “In 2020 and 2021, the COVID-19 pandemic negatively impacted our fiscal and economic situation. Global risk aversion triggered large capital outflows, a loss of external market access and rising domestic borrowing costs.”

“This year, 2022, the global economic shock induced by the Russian invasion of Ukraine has further adversely affected our economy just when it was beginning to recover from the pandemic.”

Exposure

“The combination of adverse external shocks has exposed Ghana to a surge in inflation, a large exchange rate depreciation and stress on the financing of the budget. These factors taken together have put the sustainability of our debt at risk.”

The statement said, “To address these mounting challenges, we launched on Monday, December 5 an invitation to exchange our domestic debt. The details of this domestic debt exchange are outlined in an Exchange Memorandum.

“This domestic debt operation is part of a more comprehensive agenda to restore public debt sustainability. Given the magnitude of the economic and social crisis that Ghana is confronted with, this domestic debt operation will not be enough to close the large financing gaps that Ghana faces over the coming years. The government’s Debt Sustainability Analysis (DSA) has demonstrated that our public debt, both external and domestic, is unsustainable.”

Based on that, it said the government formally requested IMF assistance in July 2022 and added that: “A Staff-Level Agreement (SLA) has subsequently been achieved and announced on December 13 on a financing programme aimed at restoring macroeconomic stability and debt sustainability and preserving financial stability while protecting the most vulnerable.

“This SLA milestone was achieved in record time. It is with this same spirit that we, therefore, expect creditors to also respond in an expedited manner to ensure that the IMF-supported programme is adopted by the IMF Board as soon as possible in early 2023.”

It further explained that in the interim, additional emergency measures were necessary to prevent a further deterioration in the economic, financial, and social situation in the country.

“As it stands, our financial resources, including the Bank of Ghana’s international reserves, are limited and need to be preserved at this critical juncture,” it said.

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