Ofori-Atta: Finance Minister Announces Plans To Swap Cedi Debts for New Bonds In Domestic Debt Exchange Scheme

• Finance minister Ken Ofori-Atta has announced plans to cut down on the interest payments for local bondholders
• He said in a video posted on the finance ministry's Facebook page that the move is part of plans by the government of Ghana under a Domestic Debt Exchange scheme
• He however explained that treasury bills will not be affected by the debt restructuring programme that would enable the government to get $3 billion bailout funds from the IMF

Finance minister Ken Ofori-Atta on the evening of Sunday, November 4, 2022, announced to local bondholders that there would be losses on interest payments under the Domestic Debt Exchange programme.

The exchange programme is the debt restructuring programme that the government needs to introduce in order to get the $3 billion bailout loan from the International Monetary Fund (IMF).

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The finance minister explained Ghana will swap existing local-currency debt with four new bonds maturing in 2027, 2029, 2032, and 2037.

“The annual coupon on all these new bonds will be set at 0% in 2023, 5% in 2024, and 10% from 2025 until maturity,” he said in the video posted late Sunday on the Ministry of Information’s page. Coupon payments will be semi-annual.

“There will be no haircut on the principals of bonds,” he said on the local-debt restructuring. “External debt restructuring parameters will be presented in due course,” Ofori-Atta said in a video posted on the finance ministry's official Facebook page.

He explained in the brief address that financial regulators such as the Bank of Ghana and the Securities and Exchanges Commission will work with creditors to minimise the impact of the debt restructuring and also announced a "financial stability fund" with development partners to provide liquidity support to banks, pension funds, insurance companies, fund managers, and collective investment schemes.

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Ken Ofori-Atta gave the assurance that treasury bills are excluded from the Domesti Debt Exchange programme.

Meanwhile, economic risk analyst Dr Theo Acheampong has observed that institutional investors such as banks, pension funds, insurance companies, fund managers and collective investment schemes will be the ones to suffer the haircuts under the proposed scheme.

"Many citizens often don’t directly buy government bonds but do so through such institutional schemes such as fixed deposit schemes offered by their financial institutions. Thus, such citizens are also likely to suffer losses on their investments. Or does the government intend to decouple these fixed deposits from those directly undertaken by the financial institutions with their own money?" he quizzed in a Facebook reaction to the minister's announcement.

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The international crediting rating agency explained that Ghana’s high debt burden and the debt structure could result substantial losses for investors.

Moody's also said it sees debt restructuring as a better alternative to a less orderly form of default that could result in higher losses for creditors.

Source: YEN.com.gh