A review of the DDEP, authored by Dr. Richmond Atauhene and K.B. Frimpong and made available to the B&FT last Friday – the eve of the final deadline for voluntary participation, noted that it is marred by inconsistencies, a lack of transparency and poor flow of information, as well as a lack of clarity on its objectives and poor treatment of creditor groups – all of which have been cited as the controversial Domestic Debt Exchange Programme’s (DDEP) biggest flaws.
Poor communication, particularly regarding the amount of fiscal space government expects to achieve, and non-disclosure of key details have been noted as being detrimental to governments position
“Government has failed to inform Ghanaians how much fiscal space the Domestic Debt Exchange Programme will provide if it is successfully implemented. It has always been a narrative without figures attached to the programme,” its authors said.
Government’s overall strategy in operationalisation of the debt exchange programme has also come under scrutiny. It has been communicated simply as a financial transaction and not as an integral part of Ghana’s strategic economic programme, which should include significant fiscal reforms and the elimination of fiscal deficit.
The authors estimated that losses using the Net Present Value (NPV) of the 23 local banks could amount to GH¢41.3billion, which could negatively impact both banks’ solvency and liquidity. They also highlighted that reforms to the fiscal space should include stricter compliance and enforcement of the Fiscal Responsibility Act 2018, and the implementation of a revamped tax administration programme.
The approach employed by government to achieve full participation in the programme, or at least the 80 percent threshold, has meanwhile been described as “too aggressive with no prior stakeholders’ engagement” with stakeholders only being consulted after the programme’s launch.
“The key strategy for government debt exchanges should have convinced creditors that the voluntary debt-swap would be transformative on the path to public debt sustainability,” said the authors.
“The lack of clarity and poor communication of the Domestic Debt Exchange’s objectives has not convinced bondholders to sign on to the protracted programme,” they added.
The review called for further constructive dialogue between government and the creditors, with binding commitments made to share the gains from cooperation. Only then, the authors argue, can the expected payoffs change and the programme be transformed into a success.
Background
On December 5th, 2022, the Ministry of Finance in Ghana invited holders of 60 old domestic debts to exchange their bonds and notes worth GH¢137.3billion (US$14.3billion) for a package of 12 new eligible domestic bonds. The debt exchange was voluntary, but local holders -including banks, firms, institutions, insurance companies, foreign investors, and pension funds – were expected to participate.
Government initially excluded retail and individual bondholders, but later included them after resistance from trade unions and lack of sufficient voluntary participation. The debt exchange deadline was extended several times, with modifications being made to the offer including adding new bonds, modifying exchange ratios, setting a target minimum participation level and offering accrued interest and cash payments to holders of eligible bonds.
On the final deadline of February 10th, 2023, government made an offer of new domestic bonds with a maximum maturity of 5 years and a 10 percent coupon rate for individual bondholders below the age of 59 and 15 percent for retirees. This was the fourth extension of the debt exchange programme’s deadline.
