Dept Restructuring: Bright Simons Lists 7 Problems With Government’s Programme
- A renowned policy analyst Bright Simons has said there are worrying problems with the Ghana government's debt restructuring programme
- He said one of the flaws has been the lack of proper stakeholder consultations with creditors
- Simons has also advised that government must be consistent with its communications on the debt restructuring or risk losing credibility and investor confidence
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A senior fellow of think tank IMANI Centre for Policy and Education Bright Simons has identified some problems with the debt restructuring programme announced by the government.
Writing in an insightful piece on the debt restructure, the policy analyst said one of the flaws of the programme has been the government's failure to properly engage creditors and other stakeholders.
Source: UGC
“Whilst various exemptions since the original proposals were mooted have reduced the initial debt relief amount by some 15%, the “debt exchange” program still remains the biggest single domestic fiscal measure in the country’s history.
“The least the government could have done before embarking on such a massive wealth transfer exercise was to have engaged closely with those whose wealth is being expropriated in the crafting of the overall program. This was not done. Instead, a fait accompli was presented to creditors,” he said.
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He attributed government’s poor engagement with the stakeholders before announcing the debt restructuring programme for domestic and foreign debts to the postponement of deadlines twice, initially from December 19 to December 30, and subsequently from 30 December, 2022, to January 2023.
In his view, the current debt restructuring programme announced by the Nana Akufo-Addo administration is “equivalent to doubling taxes on the entire corporate sector and giving the bill to only banks, insurance companies, pension funds and a few other investor categories to pay.”
Here are Bright Simons’ 7 problems with the debt restructuring programme:
1. Government's poor engagement with creditors has not helped debt restructuring programme
Simons said poor stakeholder consultations characterising the government’s approach strikingly differentiate it from the approach adopted in many other countries where similar exercises have taken place in the recent past.
"In the case of Jamaica, to name but one example, the Advisory Committee representing the interests of the creditors had full access to all financial data underlying the government’s assumptions. It held regular engagements on a wide range of design issues to inform and shape the overall strategy. And it was seen to be articulating the full range of concerns shared by all major creditors," he said.
However, government’s idea of consultations has been a couple of meetings where monologues are exchanged and vague reassurances of “support” given, he said.
2. Government's Debt Restructuring Does Not Guarantee Effective Burden-Sharing
According to Bright Simons, another a worrying feature of Ghana’s debt crisis response plan has been to shift too much of the "burden" of the debt restructuring to investors.
Citing data from the IMF, Barclays Capital, and others on comparative debt relief levels recorded in various debt restructuring programmes around the world, he said the situation in Ghana is troubling.
"More than a few international analysts are complaining that the amount of government debt burden reduction being sought by Ghana relative to its overall public debt is considerably higher than was witnessed in many previous debt restructuring episodes around the world," he surmised.
3. Lack of Credibility of the Fiscal Adjustment Strategy Under the Debt Restructuring
Furthermore, Bright Simons stated that sovereign creditors get jittery when they detect any sign that the sovereign debtor (Ghana in this case) is not willing to absorb its fair share of the harsh adjustments needed to balance the books and restore fiscal stability and macroeconomy.
"Ghana’s seeming overreliance on debt relief and tax raises, and the authorities’ reticence in cutting expenditure by trimming wanton waste identified by many fiscal activists, appear to be steadily giving credence to such a suspicion," he stated.
He predicted that the restructuring negotiations could drag from months because there is no considerable assurance about the fiscal consolidation strategy being pursued by the government.
4. Absence of Credit Enhancements in Exchange Instruments Hurts Success of Debt Exchange programme
Bright Simons stated in the article published on December 28, 2022 that Ghana seems to be pushing to unilateral clauses into the new bonds that would make future defaults easier, because, unlike the case at present, a vote by a majority of creditors will impact all creditors.
"It is removing English law protection from the ESLA and Templeton bonds. And it is applying a total interest standstill that should all but eliminate tradeability of the new bonds in 2023 (an approach that demolishes the prospect of the new bonds providing the liquidity to satisfy redemption that some fund managers claim to be anticipating," he said.
According to him, everyone agrees with the general principle of debt restructuring leading to real liquidity relief and thus providing the government with fiscal room to reset the economy on a better trajectory of sustainable growth, but the current issue is one of fairness.
"Investors were actively courted to inject funds that made the government look good. If things have taken a turn for the worse, they can’t be milked twice to make the government’s life easy," he stated.
5. Lack of Legislative Guardrails For Government's Debt Restructuring Programme
Bright Simons believes the Attorney General's advice that laws cannot be made to retrospectively attack the rights of creditors is pointless.
"In the Greek debt default episode (2011 – 2012), which has become a benchmark of some sort, similar issues were exhaustively addressed. Eventually the statutes that were specially made for the occasion provided a kind of framework for government bankruptcy proceedings in relation to the voting mechanisms required to allow orderly resolution. They were not necessarily expropriation tools.
"An example closer to home would be the 2016 law used to resolve Ghanaian banks, several of whom were founded before the law the passed. It would have been preposterous for anyone to argue that the law was being applied “retrospectively” to dispossess bank owners," he pointed out.
It helps to have laws passed on a bipartisan basis to clarify some of the grey areas and to elevate the weightiness of these momentous developments, he advised.
6. Upside Sharing & Downside Mitigation Under Debt Restructuring
Simons notes that fnvestors would hate to make massive sacrifices for the long-term based on projected challenging years ahead only for the situation to abruptly improve and all the gains accrue to the government counterparty.
"Whilst this is not an easy concern to accommodate, the rise of contingency instruments has revamped the legal technologies available in crafting strategic options for both the government and its creditors to equitably share any windfalls or upside. Argentina in both 2005 and 2010, Ukraine in 2015, and Greece in 2012, all utilised so-called 'GDP warrants' to offer investors assurance of higher earnings should the economy grow faster than the baseline. Grenada in 2015 tied its warrant offers to growth in government revenue, which is harder to game," he noted.
He said Ghana’s current proposals offer none of these creative possibilities, adding that it is time to think up one or two gaming-proof mechanisms.
7. There Must Be Narrative Consistency in Debt Restructuring Programme
Bright Simons is advising that because sovereign debt default "is a wealth destruction event of megaton proportions" the government of Ghana would doing itself a lot of harm with inconsistent messaging.
"It started with the president and various of his assigns promising investors that there will be “no haircuts”. And then proceeding to unveil a debt exchange program with stiff haircuts. Current domestic bonds maturing, on average, within 3 years will be replaced with a new set maturing on average in more than 10 years. Coupon rates have been cut from an average of more than 20% down to an average of less than 10%. The only way to preserve the value of a bond after such heavy reprofiling (and thus avoid the equivalence of a principal haircut) would have been to increase coupon rates in latter years. Despite near-consensus among investors that there have been haircuts, government spin-doctors continue to persist in the false 'no haircuts' narrative," he cited this as one of the three inconsistent messaging under the debt restructuring.
Simons said it would be in the best interest of the state to avoid inconsistent narratives about the debt restructuring programme going forward.
His solutions on how to fix the flaws have been outlined in detailed in the full article here.
NDC MP Questions Inclusion Of Individual Bondholders In Debt Exchange Programme
Meanwhile, in a separate story YEN.com.gh reported that the Minority in Parliament has questioned why the inclusion of individual bondholders in the debt exchange programme was done on Christmas eve.
The Ranking Member of the Finance Committee, Dr Cassiel Ato Forson, says the timing of the release of the information was wrong.
His comments come after the government announced that individuals holding domestic bonds have now been added to the domestic debt exchange.
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Source: YEN.com.gh
