Ghana seeks divine help as finance minister announces domestic bond reform

Nigeria’s West African neighbor, Ghana has asked its local bondholders to exchange their existing bond instruments for new ones maturing in 2027, 2029, 2032, and 2037. In doing so, bondholders must stop paying interest.

This was revealed in a speech by Ghanaian Finance Minister Ken Ofori-Atta. He said that the decision to exchange the bonds was the result of the debt sustainability analysis that was completed.

Ghana is facing a fiscal and currency crisis that has resulted in the inability to service domestic and foreign debts without challenges. Its bond yields once rose to 33% before falling to 25%.

What the Minister said: In a speech last night, the finance minister offered to refinance its domestic debts while also promising to present a plan to restructure its foreign debts “in due course”.

  • “In the Budget Statement presented to Parliament on November 24, I announced that the government will develop a program of debt operations. The broad contours of the Debt Sustainability Analysis have been finalized and I am here tonight to provide some details of Ghana’s Domestic Debt Exchange to be launched tomorrow.External debt restructuring parameters will be presented in due course.
  • “Under the Program, domestic bondholders will be asked to exchange their instruments for new ones. The existing domestic bonds on 1st December 2022 will be exchanged for a set of four new bonds that will mature in 2027, 2029, 2032 and 2037. The annual coupon of all these new bonds will be set at 0% in 2023, 5% in 2024 and 10% from 2025 until maturity. The coupon payment will be semi-annual.”
  • “Our commitment to Ghanaians and the investor community, in line with the IMF negotiations, is to restore macroeconomic stability in the shortest possible time and allow investors to realize the benefits of this Debt Exchange.”

The news alarmed investors, many of whom took to Twitter to comment on the move by the Ghanaian government.

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  • A Twitter user Joseph Anya tweeted “a testament to where excessive debt can lead a country”
  • Another user @zambianyouthh tweeted, “Imagine that you are an investment manager in a country and you invest taxpayers’ money in Ghana. No wonder offshore investors are now not reinvesting in African bonds after maturity”
  • A user @Bretuobakweku tweeted the IMF “@IMFAfrica why will you put another debt in the hands of the same men who messed up the economy ?? The finance minister who led this economic meltdown is in post and you want to increase our debts again ?? Please don’t save us, let us drown”

Ghana also insisted that while the bonds will be restructured they insist that there will be “no haircut” meaning that the value of the bonds remains the same for the bondhoders and they cannot incur losses on the principal amount of the bonds.

  • “Treasury Bills are fully exempt and all holders will be paid the full value of their investments at maturity.”
  • “No haircut on the trunk of the bonds.”
  • “Individual bond holders will not be affected.”
  • The Government recognizes that our financial institutions hold a significant portion of these bonds. As such, the potential impact of this exchange on the financial sector is being assessed by their respective regulators.

Reports suggest that the impact of this decision will be felt by Ghanian banks and retail investors, many of whom own more than 30% of the country’s domestic debt. The minister also tried to allay the anxiety of banks that are likely to book losses in the loss of interest income arising from the decision.

  • “Working together, these regulators 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 your financial institution’s debt operation is minimized, using all the regulatory tools at their disposal.
    – A Financial Stability Fund (FSF) was established by the 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 fulfill their obligations to their clients in their fall.

Heavenly help: The current Ghanian leadership has always turned to the divine for help as they seek help for their challenges.

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  • “We are confident that these measures will contribute to the restoration of macroeconomic stability. With your understanding and support and the entire investor community, we will overcome our current difficulties, and with God’s help, restore our economy on the way to renewed and sustainable growth.
    As 1 Samuel 30:19 says, nothing is lost, small or great. I tell you, nothing is lost, nothing is lost, and nothing is broken. Together, let’s take it all back. Thank you and God bless our motherland Ghana.