In a recent revelation that has sent shockwaves throughout Ghana, the government has restructured a staggering GH¢203billion in domestic debt through the Domestic Debt Exchange Programme (DDEP). While the government may celebrate this as a feat of fiscal prudence, the real question is: what has this restructuring done to our money and the financial stability of the nation?
This move, which has reportedly saved the government approximately GH¢61billion in interest costs, comes at a considerable cost to the people and businesses of Ghana. It’s a troubling reflection of how government inefficiency and policy failures have been transferred to the shoulders of individuals and enterprises, leading to untold hardship in Ghana.
The restructured debt breakdown
To fully comprehend the implications, it’s crucial to dissect the breakdown of this GH¢203billion in restructured debt:
- Treasury bonds, ESLA, and Daakye Bonds (Excluding Pension Funds): GH¢87billion in debt was restructured in this category. The average coupon rate has significantly dropped to 9.1 percent (previously 19.1 percent) and the maturity period extended to 8.3 years (previously 3.8 years).
- Pension fund holdings: GH¢29.6billion in debt from pension fund holdings in Treasury Bonds, ESLA, and Daakye Bonds were restructured. The coupon rate and average maturity period remain largely the same at 20 percent and 4 years, respectively.
- Dollar-denominated local bonds: US$742million in dollar-denominated local bonds were restructured. The average coupon rate dropped to 3 percent (previously 5.3 percent) and the maturity period extended to 1.5 years (previously 4.5 years).
- Cocoa bills: GH¢7.7billion in debt from cocoa bills was restructured. The coupon rate significantly decreased to 13 percent (previously above 30 percent) and the maturity period extended to 4.4 years (previously 0.7 months).
- Principal haircut on Bank of Ghana’s debt: GH¢70.9billion in principal was cut from the non-marketable debt instrument of the Bank of Ghana. The current coupon rate increased to 10 percent, and the maturity period extended to 15 years.
Printed money and soaring inflation
Besides this massive debt restructuring, the government’s decision to print over GH¢70billion into the economy has raised alarming concerns. Imprudent fiscal policy decisions, coupled with external pressures, have led to rampant inflationary pressure and soaring borrowing costs, significantly impacting the cost of doing business in Ghana.
Inflation has surged from 12.6 percent in 2021 to approximately 54 percent in 2022 while the policy rate has surged from 14.5 percent in 2021 to around 30 percent in 2023. These figures reflect a grim reality for businesses and individuals alike, as the purchasing power of the Ghanaian cedi dwindles and the cost of borrowing becomes a crippling burden.
The heavy toll on individuals and businesses
The fall-out from Ghana’s fiscal policies, characterised by debt restructuring and the injection of an enormous amount of money into the economy, is exacting a profound toll on both individuals and businesses. The repercussions of these actions are not mere abstractions; they manifest in tangible hardships that impact the everyday lives of Ghanaians and the operational landscape for businesses. Here, we take a closer look at the real consequences:
Individuals struggling with soaring costs
- Rising prices of goods and services: One of the most immediate and palpable effects is the surge in the prices of basic necessities. The cost of food, housing, transportation and healthcare has witnessed dramatic increases, leading to a reduced standard of living for many Ghanaians. Families are compelled to allocate more of their budgets to cover essential expenses, leaving less for savings or discretionary spending.
- Eroding purchasing power: The erosion of the purchasing power of the Ghanaian cedi means that the same amount of money now buys less. This situation leaves individuals struggling to maintain their accustomed quality of life. Inflation-driven price hikes translate into less buying power, making it challenging to meet daily needs or make investments for the future.
- Difficulty in meeting financial obligations: Higher costs of living are making it increasingly challenging for individuals to meet financial obligations such as rent or utility payments, food, school fees, and healthcare expenses. The result is financial strain, increased indebtedness, and the risk of individuals falling into arrears or facing financial crises.
Businesses navigating a challenging landscape
- Higher operational costs: For businesses, these fiscal actions translate into higher operational costs. Rising prices for raw materials, utilities and labour mean that maintaining profitability becomes an arduous task. Businesses are often left with two choices – absorbing the increased costs which narrow profit margins, or passing them on to consumers, which risks decreased demand for products and services.
- Reduced profit margins: As businesses struggle to manage escalating operational costs, their profit margins shrink. This reduces the capital available for reinvestment, growth and job creation. In many cases, businesses are forced to cut back on expansion plans or capital investments.
- Uncertain economic outlook: The unpredictable economic landscape created by these fiscal policies injects a sense of uncertainty into the business environment. Companies find it challenging to make long-term strategic decisions when confronted with inflationary pressures and rapidly changing economic conditions.
- Potential business closures and job losses: Some businesses, particularly small and medium-sized enterprises (SMEs), may face the prospect of closure due to the adverse financial conditions. This could result in job losses and the potential contraction of certain sectors of the economy.
Prudent financial management
As Ghana grapples with the aftermath of this fiscal turmoil, there is an urgent need for prudent financial management, transparency and accountability. The government’s fiscal decisions should prioritise the well-being of the people and the long-term economic stability of the nation.
Failure to do so could result in further economic hardships for individuals and businesses, making it vital for all stakeholders to scrutinise and question the fiscal policies in place and advocate for responsible governance that truly safeguards the interests of the people. The fate of Ghana’s money is inextricably linked to the decisions made by those in power, and it’s high time these decisions prioritised the prosperity and welfare of the nation’s citizens.
