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Govt domestic debts exchange programme to be launched Monday; No haircut on treasury bills, principal bonds

BY: Enoch Darfah Frimpong
Govt debts operation programme to be launched Monday
Govt debts operation programme to be launched Monday

The government will on Monday launch the Debt Exchange programme announced in the 2023 budget.

This is after series of engagements with key stakeholders.

The Ghana Debt Exchange (GDX) programme has been informed by a Debt Sustainability Analysis that revealed public debt, excluding overdraft, state owned enterprises (SOEs) and special purpose vehicles (SPVs) as a ratio of Gross Domestic Product (GDP) to be 75.9 per cent as of the end of September 2022.

The Minister of Finance, Ken Ofori-Atta, in the 2023 Budget Statement said a full debt exchange programme will be outlined.

The Bank of Ghana also alluded to that in its Monetary Policy Report issued of November 28, 2022.

The debt operation is part of a comprehensive set of measures for reducing the present value of public debt to Gross Domestic Product (GDP) ratio to, at least, 55 per cent in the medium term by offering an effective cap on interest payments on public debt.

Sources indicate that except for Treasury Bills (T-bills), all locally issued bonds and notes of the government will be eligible in the domestic debt exchange.

This suggests that bonds and notes denominated in US dollars and bonds issued by ESLA and Daakye will be eligible under the GDX.

Available information indicates that the proposed GDX, which invites eligible holders to voluntarily tender their holdings, does not entail any nominal haircut, as promised by President Akufo-Addo.

However, it involves extending the maturity period and a reduction in the average coupon rate.

Persons close to the issue have intimated that the debt exchange programme will complement both expenditure rationalisation and revenue-enhancing measures outlined in the 2023 Budget and enable Ghana to unlock the IMF programme disbursements, which is critical to mitigating the current pressures on public finance, the Cedi and inflation.

Domestic debt exchange: No haircut on treasury bills, principal bonds

In a televised announcement on Sunday night (December 4, 2022), the Minister of Finance, Ken Ofori-Atta said there will be no “haircut” on the principal of bonds and that individuals with government bonds will have their full investments on maturity.

On allegations of possible haircuts on all bonds and treasury bills following government’s debt restructuring deal with the International Monetary Fund (IMF), Mr. Ofori-Atta said government will ensure that people’s investments are safe.

“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,” he said.

Mr Ofori-Atta added that the government has concluded the broad contours of the debt sustainability analysis and details on Ghana’s domestic debt exchange will be launched on Monday, December 5, 2022.

Attached below is a copy of the announcement statement read by Mr Ken Ofori-Atta on Sunday night .

Good Evening Ghanaians,

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 1 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 Government of Ghana has been working hard to minimize the impact of the domestic debt exchange on investors holding government bonds, particularly small investors, individuals, and other vulnerable groups.

In line with this:

• 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.

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 (FF) 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.

These are difficult times and we count on the support of all Ghanaians and the investor community to make the exercise successful.

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.

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