Debt exchange panacea for strong market - Finance Minister
The government’s debt exchange programme will help tidy up the bonds market and develop it into a world-class status, the Minister of Finance, Ken Ofori-Atta, has said.
He has, therefore, urged Ghanaians and all bondholders to support the government to chart the difficult path to improve the finances of the country.
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Currently, there are over 60 different bonds and treasury notes, with various coupon (interest) rates and maturity periods.
The maturity periods range between two and 15 years. Three of the bonds have maturity periods of 12, 15 and 20 years.
This means almost every month, the government has to look for money to pay interests and also pay out maturing bonds.
About GH¢8 billion of the debts in the bonds market is owed to individuals who constitute about 5.8 per cent of the estimated GH¢137 billion domestic bonds.
However, the individual bond holders are exempted from the debt exchange programme, as they can hold to maturity and also enjoy the same coupon rates.
The government is hopeful that after the first year of reprieve, during which no interests would be paid, it could raise enough to pay off the individual bondholders.
According to briefs provided by the Ministry of Finance, the four classes of bonds will absorb all the 60 bonds while paying uniform coupons.
“We are at a critical junction at this time. It’s a real economic problem. This is where we are and it is a difficult time for us in Ghana and people around the world,” he said in an interview with journalists last Thursday.
Mr Ofori-Atta said most important at the moment was how to create an orderly process in the mess and asked all the targeted entities to swap voluntarily their existing bonds with the new categories to help take the economy out of the challenges.
“I know we can because we have done this before,” the Finance Minister said, and entreated all to stand up for the country and support the Domestic Debt Exchange Programme.
Background
All existing bonds that will be submitted voluntarily for the Debt Exchange Programme will be allotted into the four bond types according to the formula given by the Minister of Finance.
The government has given eligible bondholders up to 4 p.m. of Monday, December 19, this year for the voluntary submission of existing bonds for new ones.
By the formula, for every bond held, 17 per cent each would be allotted to the first and second categories of bonds, while 25 per cent of the same bond held will be allotted to the third category, with 41 per cent being lodged into the fourth category.
For the coupons, none of the bonds will receive interest next year. However, all the classes of bondholders will be paid five per cent in 2024, while from 2025 all bondholders will receive 10 per cent annually until the bonds reach maturity.
Although the first class of bonds will mature in 2027, the government will pay off half of the principal in 2026 and retire the following year on maturity.
The measure is to give some respite to government treasury of coughing up almost 70 per cent of all domestic revenue every month to pay interests and debts falling due.
It will free up revenue for the government in what is known as ‘fiscal space’, to enable it to finance the productive and social sectors as well as other programmes.
The exercise is also to send a signal to the International Monetary Fund (IMF) that the country was already taking steps to deal with its unsustainable debt levels, a move considered key in securing an IMF-backed programme to revive the economy.
The government is in talks with the IMF to support a programme with $3 billion in about three years as a leverage to rake in other resources to fund development.
An IMF deal will improve confidence in the economy and enable it to source for financial resources from the international capital market.
Pain for gain
Answering Daily Graphic queries, the Director of Treasury and Debt Management at the Ministry of Finance, Dr Samuel Arkhurst, encouraged all eligible bondholders to understand the measure and voluntarily support it.
He explained that prior to the economic crisis brought on by the global pandemic and disruptions in the global supply chain due to the ongoing Russia-Ukraine war, the debt exchange option was the best way forward.
“Without this option, we can completely crash the domestic bond market. The pain we will all endure is nothing compared to the consequences without this option,” he explained.