Debt exchange: Breakdown of domestic bondholders revealed

The push for exemption from the GH₵137.3 billion domestic debt exchange programme by various groups has put the arrangement which is critical to securing International Monetary Fund (IMF) bailout to salvage the dwindling fortunes of the economy in danger.

Looking at the amounts various players have in the domestic debt, the exemptions being demanded will make it impossible for government to achieve its targeted 80% threshold in the voluntary debt exchange programme.

The domestic bond exchange is to replace previously issued bonds with heavily discounted new bonds of lower value and this is what bondholders are fighting against.

Ghana seeking $3 billion loan

Ghana and the International Monetary Fund (IMF) have reached staff-level agreement on economic policies and reforms to be supported by a new three-year arrangement under the Extended Credit Facility (ECF) of about $3 billion.

But, the IMF has made it clear that the Board’s approval of the deal is contingent on a successful debt exchange programme.

GH₵181.3bn domestic debt

The Annual Public Debt Report for the 2021 financial year put the total domestic debt at GH₵181.3 billion (GH₵181,397.2 million).

GH₵152.4bn held by Ghanaians

According to the report, Ghanaians hold GH₵152.4 billion (GH₵152,401.9 million) of the domestic debt representing 84%.

GH₵28.9bn of domestic debt held by foreigners

On the other hand, foreign investors are holding GH₵28.9 billion (GH₵28,995.3 million) of Ghana’s domestic debt, amounting to 16%.

GH₵91bn held by banking sector

Out of the GH₵181.3 billion domestic debt, the banking sector alone accounts for GH₵91 billion (GH₵91,032.2 million) representing 50.2%

GH₵35.8bn held by Bank of Ghana

A further break down of the banking sector’s component shows that the Bank of Ghana (BoG) is responsible for GH₵35.8 billion (GH₵35,861.7) representing 19.8% of the GH₵181.3 billion domestic debt.

GH₵55.1bn held by Commercial Banks

The report shows that Commercial Banks hold GH₵55.1 billion (GH₵55,170.5 million) which amounts to 30.4% of the total domestic debt in 2021.

GH₵2bn held by Rural Banks

Per the report, Rural Banks also have some GH₵2 billion (GH₵2,006.7 million) representing 1.1% of domestic debt.

GH₵61.3bn held by Non-Bank Sector

On the other hand, the Non-Bank Sector has GH₵61.3 billion (GH₵61,369.7 million) representing 33.8% locked up in domestic debts.

GH₵16.7bn held by individual investors

According to the report, individual investors account for GH₵16.7 billion (GH₵16,717.6 million) which represents 9.2% overall domestic debt.

GH₵ 41bn held by Firms and institutions

Firms and institutions also hold GH₵41 billion (GH₵41,013.8 million) of the domestic debt which represents 22.6%.

GH₵1 held by insurance companies

According to the data, insurance companies account for over GH₵1 billion (GH₵1,094.6 million) which amounts to 0.6% of the total domestic debt in 2021.

GH₵ 537.1m held by SSNIT

In respect of the Social Security and National Insurance Trust (SSNIT), it accounts for GH₵537.1 million constituting 0.3% of overall domestic debt.

Exemptions will derail programme

Considering the huge amounts held by the various players, any additional exemption to pension funds will mean that government cannot meet the 80% threshold which has negative implications for the pending IMF Board approval.

Domestic debt by tenor

Investors’ demand for short and medium-term Government securities was relatively higher in 2021.

Accordingly, the proportion of short-term debt in the domestic marketable debt stock increased from 13.7 %in 2020 to 14.6% in 2021.

Similarly, the proportion of medium-term debt rose from 73.5% in 2020 to 74.2% in 2021.

However, the proportion of long-term debt in the portfolio of domestic marketable debt decreased from 12.8% in 2020 to 11.2% in 2021 Domestic investors continued to deepen their participation in the domestic bond market in 2021.

As a result, holdings of Government securities by local investors increased by 25% from GH¢121.9 billion (GH¢121,925.1 million) in 2020 to GH¢152.4 billion (GH¢152,401.9 million) in 2021, while foreign investor holdings grew by 4.7% in comparison, from GH¢27.6 billion (GH¢27,687.2 million) in 2020 to GH¢28.9 billion (GH¢28,995.3 million) in 2021.

Consequently, the share of foreign holdings decreased from 18.5% to 16% between 2020 and 2021, while the share of local investors in the domestic debt portfolio increased from 81.5% to 84% over the same period.

Under the original plan of the domestic debt exchange programme, local bonds were to be exchanged for new ones maturing in 2027, 2029, 2032 and 2037, with annual coupons set at 0% in 2023, 5% in 2024 and 10% from 2025 until maturity.

Government later modified the terms including eight additional instruments to be created, bringing the total number of new bonds to 12, with one maturing each year from 2027 to 2038.

Following widespread condemnation of inclusion of pension funds by labour and advocacy groups, government exempted pension funds from the programme.

Despite their initial exemption, individual bondholders have been included in the programme and they are opposing it.