Ofori-Atta: Resisting debt exchange inimical to economic recovery 

Minister of Finance, Mr Ken Ofori-Atta has cautioned that “a destabilized macro-economic environment is the greatest enemy to the value of workers’ pensions,” and called on the Trades Union Congress (TUC) among other groups to support efforts by government to restore macroeconomic stability and promote robust and inclusive growth.

The Minister, during a press conference organised jointly by the Ministry of Finance and the International Monetary Fund (IMF) in Accra admitted it was not surprising to learn of the feedback from labour on the launch of the domestic debt exchange programme, as part of efforts to  restructure the country’s debt.

The TUC on Monday issued a statement giving a one-week ultimatum for government to exempt pension funds from the Debt Exchange Programme.

The Union said it had come to a firm conclusion that the debt exchange programme will negatively impact pension funds of its members, and consequently the retirement income security of workers.

Secretary-General of TUC, Dr. Yaw Baah was quoted in the statement as saying that the TUC and its affiliate National Unions had decided that “the pension funds of their members will not be part of the Domestic Debt Exchange Programme.”

He asked workers to get ready to participate fully in any industrial action to protect pension funds, adding: “workers will no longer bear the consequences of any IMF-inspired policies. Government is responsible for all the consequences of its decisions.”

Other identifiable groups such as the trade associations, individual pensioners, research institutions, the academia and the public at large have expressed some uneasiness about the fencing of their investments.

But Finance Minister gave the assurance that stability would soon be restored, urging calm on the labour front and rallying all to support the government steer the country into stable waters.

“We are confident as a resilient people, and we shall rally to support this great enterprise, to restore macroeconomic stability and promote robust and inclusive growth. The world is looking at us, and I know we can do it,” Mr Ofori-Atta stated.

Mr Ofori-Atta observed that already, the economy was responding positively to the news of government and the IMF reaching a staff level agreement and “we are eager to leverage this momentum to the very moment when the IMF Executive Board approves the Programme request.”

“We are already seeing significant improvements in the exchange rate with the Ghana cedi recovering against major currencies, the Finance Minister added.

The Domestic Debt operation involves an exchange for new Ghana bonds with coupons of a longer average maturity. Existing domestic bonds as of December 1, 2022 will no longer be exchanged for a set of four new bonds maturing in 2027, 2029, 2032 and 2037.

The annual coupon on all these new bonds according to the MoF, will be set at zero percent in 2023, five percent in 2024, and 10 percent in 2025 until maturity. Coupon payments will be semi-annual, with the programme not affecting individual bondholders.

IMF Mission Chief to Ghana Stephane Roudet reposed confidence in government’s ability to restore macro-economic stability stressing the importance of a successful debt restructuring exercise for the approval of the IMF Board of a support programme for Ghana.

He reiterated the point that government had committed to a wide-ranging economic reform programme, “which builds on the government’s Post-COVID-19 Programme for Economic Growth and tackles the deep challenges facing the country.”

The COVID-19 pandemic, rising global food prices, rising crude oil and energy prices; and the Russia-Ukraine war adversely affected Ghana’s macroeconomy, with spillovers to the financial sector.

The combination of adverse external shocks had exposed Ghana to a surge in inflation, a large exchange rate depreciation and stress on the financing of the budget, which taken together have put our public debt on an unsustainable path.

Debt servicing is now absorbing more than half of total government revenues and almost 70% of tax revenues, while total public debt stock, including that of State-Owned Enterprises and all, exceeds 100% of GDP.

Debt Sustainability Analysis (DSA) had demonstrated that Ghana’s public debt was unsustainable, and that the government may not be able to fully service its debt down the road if no action is taken.

The DSA had demonstrated that Ghana is faced with a significant financing gap over the coming years revealing that public debt is unsustainable.

To address the ongoing economic crisis, the government had already requested financial support from the IMF.

GH₵137bn domestic debt

In the Debt Exchange programme, government is targeting GH₵137 billion in domestic notes and bonds from domestic debt holders.

4 New Ghana bonds

Domestic debt operation involves an exchange for new Ghana bonds with a coupon that steps up to 10% as soon as 2025 (with a first interest payment in 2024) and longer average maturity.

Maturing dates for the new bonds

Existing domestic bonds as of December 1 2022 will be exchanged for a set of four new bonds maturing in 2027, 2029, 2032 and 2037.

Predetermined allocation ratios

Predetermined allocation ratios are 17% for the short bonds, 17% for the intermediate bond, 25% for the medium-term bond and 41% for the long-term bond.

Annual coupon rates

The annual coupon rates on all of these new bonds will be set at 0% in 2023, 5% in 2024 and 10% from 2025 until maturity. Coupon payments will be semi-annual.

Eligible holders, who deliver valid offers at or prior to the expiration date that are accepted by the country, will receive at the settlement date in exchange for their eligible bonds accepted, the same aggregate principal amount distributed across new bonds due dates.

Offers end on December 19

Offers may only be submitted starting from December 5, 2022, and ending at 4:00 p.m. (Greenwich Mean Time (GMT)) on December 19, 2022.

Sole discretion to extend expiration date

However, government may at its sole discretion extend the expiration date, including for one or more series of eligible bonds.

Only registered holders eligible

The invitation is available only to registered holders of eligible bonds that are not individual investors or that are otherwise authorised by the Government of Ghana, in its sole discretion, to participate in the Invitation.

Government said eligible holders tendering their eligible bonds pursuant to the invitation will receive new bonds of the country on the terms and subject to the conditions described in the Exchange Memorandum.
All offers irrevocable

All offers to exchange eligible bonds made by eligible holders are irrevocable and by tendering their eligible bonds, eligible holders represented and warrant.

Eligible bonds

Such eligible bonds constitute all the eligible bonds owned by them and consent to the blocking by the Central Securities Depository of any attempt to transfer them prior to the settlement date or the termination of the invitation.