The Policy Forum with Emmanuel OWUSU: Proposals to operationalise GFSF


The government, through the Financial Stability Council (FSC), has announced plans to establish a Ghana Financial Stability Fund (GFSF) to provide liquidity support to financial institutions that fully participate in Ghana’s Domestic Debt Exchange Programme. The fund is expected to have a target size of GH¢15billion and will benefit banks, SDIs, pension schemes, collective investment schemes, fund managers, broker/dealers and insurance firms.

The Financial Stability Council was established in December 2018 by an Executive Instrument to “identify and evaluate the threats, vulnerabilities and risks to the stability of the financial sector”. The Governor of the Bank of Ghana chairs the council, which includes representatives from the Bank of Ghana (Deputy Governor), the Ministry of Finance (Deputy Minister), the Securities and Exchange Commission (Director-General), the National Insurance Commission (Commissioner), the National Pensions Regulatory Authority (Chief Executive Officer), and the Ghana Deposit Protection Corporation (Chief Executive Officer).

The government has stated that it is still working on developing guidelines and procedures for accessing the fund. Since the announcement of the stability fund, policy analysts have analysed potential ways the government plans to operationalise the fund. The main thematic areas that have cut across most analyses have been its source of funding, sustainability and beneficiaries. As a policy thought leader, I will also share some ideas that the FSC can consider in operationalising the fund.

Financial insurance package

The government should set aside a portion of the fund to be known as the Financial Insurance Package to assist people who are likely to lose their jobs as a result of the debt restructuring process as most financial institutions will redesign their operational plans to accommodate the fall in revenue they are most likely to face during the period after the exchange is completed. Many of them will modify their operations to create sustainable models, and the most common option from experience is to lay off employees. The package should be made available to any employee whose firm participates in the debt exchange programme and loses his job as a result. This will help to mitigate the economic impact on individuals who are likely to fall in this category.

Source of funding

The Ministry of Finance has stated that funds for the GFSF will come from the government and its development partners, but it is unclear where the government is getting these funds from given its limited spending envelope. I would advise the government to consider these sources; cut 10 percent of government expenditure to make some savings to cushion the fund’s sustainability. The government’s expenditure for 2022 was GH¢136.92billion, with a projected increase to GH¢191billion in 2023; employee compensation was GH¢38billion in 2022, and is expected to increase to GH¢44billion in 2023. The government should also reconsider the cost-benefit analysis for some of its projects, such as the National Cathedral Project, which has received national attention; the Free SHS policy; Planting for Food and Jobs; to name a few. The government should also put in place a moratorium on the formation of new government agencies in 2023 and beyond. I believe the government can save a lot of money if it considers some of these areas.

Furthermore, the government should channel 1 percent of the VAT rate increase into the fund to keep it liquid. This will ensure that the fund has a constant supply of funds to ensure its sustainability. These tax revenues could be used to support the Ghana Financial Stability Fund. Government should place a greater emphasis on compliance measures to ensure that those outside the tax net honour their tax obligations in order to ensure consistent revenue to support initiatives such as the GFSF.

Financial moratorium

The Financial Stability Council (FSC) has directed financial sector regulators to temporarily reduce regulatory capital and liquidity requirements for regulated firms and schemes that voluntarily participate in the debt exchange. It also stated that regulators should suspend or postpone any new rules that will have a negative impact on liquidity or solvency of firms. My suggestion to the FSC is that it should not only direct, but also guide the process of collaboration with the regulators to develop new Capital Adequacy Reforms and ensure it implementation. This proposed new reform should include lowering the capital adequacy rate as well as providing them with flexible meeting terms to assist them in properly planning their financial operations. The government should also consider some corporate tax holiday for financial institutions that will participate in the debt exchange programme, allowing them to save money on their expenditure build-up.

In addition to the afore-mentioned proposals, the government should continue the engagement processes it has started with financial sector stakeholders on debt exchange programme implementation. There should be an open discussion about how the Ghana Financial Stability Fund will be operationalised. It should also be noted that the government deserves some credit for deciding to engage and for the conclusions from some of these engagements.

 The writer is a Policy Analyst & Executive Director, Movement for Responsible & Accountable Governance (MoRAG). 0248110208 or [email protected]

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