Ghana to Swap Domestic Debt in Fight to Regain Economic Stability
Ghana will launch a domestic debt exchange on Monday, its Finance Minister Ken Ofori-Atta said, expressing confidence that the move would help restore macroeconomic stability and end the West African country’s worst economic crisis in a generation.
Ofori-Atta said in a video address on Sunday that Ghana’s government had finished its debt sustainability analysis, but he did not provide any information on plans for foreign debt that are anxiously awaited by international creditors.
Existing domestic bonds as of 1st December 2022 will be exchanged for a set of four new bonds maturing in 2027, 2029, 2032 and 2037.
Under the domestic debt exchange, local bonds will be exchanged for new ones maturing in 2027, 2029, 2032 and 2037 and their annual coupon will be set at 0% in 2023, 5% in 2024 and 10% from 2025 until maturity.
Ofori-Atta said the government wanted to minimise the impact of the debt swap on small investors so would not apply the terms to Treasury bills or to holders of individual bonds. There will also be no haircut to the principal of the bonds, he said.
“Under the Programme, domestic bondholders will be asked to exchange their instruments for new ones.
“The annual coupon on all of these new bonds will be set at 0 per cent in 2023, 5 per cent in 2024 and 10 per cent from 2025 until maturity. Coupon payments will be semi-annual.
“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.
“We are confident that these measures will contribute to restoring macroeconomic stability”, he said.
The government is in talks with the International Monetary Fund for a support programme to relieve its debt distress.
The local cedi currency has plummeted more than 50% against the dollar in 2022, while the central bank hiked its main lending rate to 27% last Monday after inflation hit a 21-year peak in October.
“It should … reinforce expectations that Ghana is on its way to an IMF staff-level agreement. We expect the Ghana cedi to benefit as a result.
“There was little question that Ghana needed LCY (local currency debt) coupon reductions to restore macro sustainability. By excluding retail investors, this is likely to be more politically palatable”, said Razia Khan, Chief Africa Economist at Standard Chartered.
How the plan will impact individuals is still to be determined as many hold bonds through mutual and pension funds.
Ofori-Atta said the government would set up a financial stability fund with the support of development partners to help domestic financial institutions, including banks and pension funds, weather the swap.
“I say to you, nothing will be lost, nothing will be missing, and nothing will be broken. We will, together, recover all”, he said.
-diplomatic diary
