A report conducted by Banking Consultant, Dr. Richmond Atuahene, has revealed lots of inconsistencies and incoherence in the objective of the Domestic Debt Exchange Programme (DDEP).

According to the research, a critical review of the implementation of Ghana’s DDEP programme so far clearly showed that there were also lack of transparency and a poor timely flow of information, bad faith and poor treatment of creditor groups and reactive stands, instead of the Ministry of Finance being proactive.

“From critical review of the Ghana’s domestic debt exchange, it is not in line with the best principles for fair debt restructuring for emerging economies”, the report said.

“The strategy on the above has not been done properly by the Ghana government. The government has failed to inform Ghanaians how much fiscal space the domestic debt exchange if the programme is successfully implemented will provide a significant fiscal space for government for the programme period. It has always been narrative, no figures have been attached to the domestic debt exchange programme”, it added.

According to an earlier publication by Morgan Stanley Investment Banking Group, there is a cash flow savings of $7.2 billion between 2023 and 2028.

The debt exchange initiative will release approximately $1.2 billion each year in 2023, 2024, 2025, 2026, 2027 and 2028.

The report said “from our earlier research findings published from the data analysis using NPV [Net Present Value] of the debt exchange of the total PV of bond value of domestic banks, firms and institutions, foreign investors, Bank of Ghana, retail and individuals, insurance companies, SSNIT and rural and community banks of ¢431.962 billion showed the estimated losses of ¢117.346 billion in NPV to local bondholders with maturity extension from five years to 15 years with an average coupon rate declining from current weighted average of 20.0% to weighted average rate of 9.0% for the 12 eligible new domestic bonds maturing with predetermined ratio of 9% from 2027 to 2031 and 8% from 2032 to 2038”.

“With an overall NPV estimated losses of 58%, banking sector losses including Bank of Ghana and rural and community banks amounted to ¢67.880 billion, a major factor for determining the capital needs of the banks. Furthermore, it is estimated that losses of 35% using NPV of the 23 local banks could amount to ¢41.315 billion and it could impact negatively on both banks’ solvency and liquidity”, the report mentioned.

Findings

The report said the reform of the fiscal space in the DDEP never included the stricter compliance and enforcement of a Fiscal Responsibility Act 2018, Act 982, which strictly requires that the annual fiscal deficit does not exceed 5% of the GDP, as well as the implementation of a revamped tax administration program and public sector transformation.

“The way the government has been handling the operationalization has not been in line with the best practices of the fair debt restructuring for the emerging markets”, it added. 

Again, the key strategic flaw was the inability of the government on the DDEP was the failure to convince creditor groups that the voluntary debt swap would be transformative on the path to public debt sustainability through improved economic growth and fiscal consolidation, thereby increasing the market value of the 12 ‘new’ domestic bonds maturing yearly starting 2027 and ending 2038.

It added the lack of clarity and poor communication of the objective of domestic debt exchange have not convinced bond holders to sign on the protracted programme.

“The strategy should have involved first making a convincing case to the market on the prospect of significant cost savings that would contribute to sustainable debt dynamics from voluntary par‐for‐par exchange of expensive bonds with low coupon, longer maturity instruments but this has not happened”.

Another important strategic failure in the Ghana’s debt restructuring, the report mentioned was the failure by government to keep good faith with all creditors, adding, “good faith actions should be displayed by the debtor – Government of Ghana. The Ministry of Finance has shown bad faith in dealing all creditors”.