An Associate Professor of Finance at the University of Ghana Business School (UGBS) says the positive impact expected from the Domestic Debt Exchange Programme (DDEP) is yet to be seen.

According to Professor Lord Mensah, before the program, interest rates were as high as 21% to 22%, with the government aiming for a significant reduction through the DDEP.

He explains that in 2023, interest payments amounted to 53 billion, with an anticipated increase to around 55 billion in 2024, considering foreign debt. However, despite implementing the DDEP, the anticipated market gains did not materialize.

“The debt exchange which I was expecting that after a debt exchange, your interest payment would reduce drastically, we did not see that and so effectively, the impact of debt exchange on our expenditure is not being felt as expected.

"We are still on the horizon of having a yield curve where short-term interest rate turns out to be so high or sometimes double or triple the long term interest rate,” he added.

Mr. Mensah, who was speaking on the JoyNews AM Show, stressed that the available cash for utilization has become an issue due to dwindling investor confidence in government bonds.

He said investors are favoring short-term investments, attributing this shift to the government's pattern of high expenditure and significant budget deficits.

Mr. Mensah said while the current budget deficit appears to be lower than the previous year, this may be misleading.

He argued that although official figures show a reduced deficit, the government has raised its expenditure target.

Background

In December last year, the Minister for Finance, Ken Ofori-Atta launched Ghana’s Domestic Debt Exchange Programme (DDEP) with the hope of restoring the nation’s capacity to service its debt.

Speaking at the launch at the Ministry of Information on Monday, December 5, 2022, the Finance Minister said the objective of the Programme is “to invite holders of domestic debt to voluntarily exchange approximately GH¢137 billion of the domestic notes and bonds of the Republic, including E.S.L.A. and Daakye bonds, for a package of New Bonds to be issued by the Republic.”

Mr. Ofori-Atta said it was necessary for his Ministry and the Government to take such drastic measures now because “the Government may not be able to fully service its debt down the road if no action is taken.”

“The Debt Sustainability Analysis (DSA) demonstrated unequivocally that Ghana’s public debt is unsustainable, and that the Government may not be able to fully service its debt down the road if no action is taken. Indeed, debt servicing is now absorbing more than half of total government revenues and almost 70% of tax revenues, while our total public debt stock, including that of State-Owned Enterprises and all, exceeds 100% of our GDP. This is why we are today announcing the debt exchange, which will help in restoring our capacity to service debt,” he added.