Fund managers suffer severe liquidity crunch — SEC, BoG working to address problem
Fund managers have been severely hit by liquidity problems, making it virtually impossible for them to serve their customers who approach them to redeem all or a part of their investments.
The development has heightened speculations that the government intends to undertake a haircut on investments as part of efforts to restructure its debts which have reached unsustainable levels.
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The Graphic Business has observed that many of the fund managers have come under severe pressure in the last couple of months as investors troop to their offices on a daily basis to redeem their investments, creating what looks like a panic situation.
They fear a repeat of the harrowing experience from the financial sector cleanup exercise in 2019 which caused many to lose a part or all of their investments.
Some of the fund managers who spoke on grounds of anonymity said the development was beginning to cripple their business and affecting the trust reposed in them by investors, some of whom suffered under the financial sector cleanup and were dreading a repeat of a similar action.
They blamed the development on the raft of measures undertaken by the Bank of Ghana (BoG) to mop up excess liquidity in the system as part of monetary policy measures to control the high rate of inflation in the country.
The rate at which the prices of goods and services increase reached 40.4 per cent last October, up from the 37.2 per cent in September. The phenomenon has brought the BoG under pressure to reverse the trend, hence the measures, including the increase in its policy rate to mop up excess liquidity from the system.
SEC intervention
Speaking on Joy FM, a radio station in Accra, the Director-General of the Securities and Exchange Commission (SEC), Rev. Daniel Ogbarmey Tetteh, said the commission had engaged the BoG to find ways to improve liquidity to the fund managers to enable them to honour their obligations to their customers.
He admitted to the challenge, saying “the fund managers reported the development to us some two months ago and that is why we are engaging the Bank of Ghana to reverse the trend and bring some relief to them”.
Rev. Ogbarmey Tetteh, in an attempt to calm the nerves of troubled investors, said the discussions were far advanced and expressed the hope that the present situation would be reversed in due course.
Lack of education
The government’s posture as far as its negotiations with the International Monetary Fund (IMF) is concerned seems to be fuelling speculations as information on progress, particularly with regard to measures to ensure debt sustainability, is not forthcoming.
This is creating a lot of anxiety in the market as people and the business community are not sure of the next line of action.
For instance, many businesses have heavily invested in government securities such as treasury bills and bonds which have very juicy coupon rates.
At a time when many investors are yet to recover from the shocks of the financial sector cleanup, the last thing for them to expect after going back to invest is losing a part of their interest or the principal because of a potential haircut.
Much as the President has allayed fears of any such haircut, speculations based on analysis of the government’s debt profile and commentaries from economic experts point to the fact that the haircut is inevitable.
What remains to be seen is whether any such move will be on the principal, which many hope not to see, or a part of the interest earned on their investments.