Full Statement: Minority’s take on Ghana’s Domestic Debt Exchange Programme 

 

Good Morning, Ladies and Gentlemen of the Press,

We are here today to register our profound dissatisfaction with the  Nana Addo Bawumia Government Debt Exchange Programme that is  threatening the very survival of our financial sector. Today, Ghana  is rated alongside Sri Lanka and Lebanon, what an irony! a reflection  of the horrendous mismanagement of the economy.

It is no secret that Ghana today is in debt Distress. This has been  confirmed by both the finance minister and the International  Monetary Fund (IMF).

[Sika nu ᴈni hↄ! [to wit, there is no money]. 

The Minister of Finance, in the 2023 Budget Statement, presented a  gloomy picture of Ghana’s debt situation. He said at paragraph 275:  “… our internal Debt Sustainability Analysis (DSA) shows that  the public debt position in the medium-term is  unsustainable and requires immediate redress. The analysis  identified a number of risks including cost of funding risks,  rollover/refinancing risks, elevation in market risks, contingent

liability risks, operational risks, liquidity risks and legal  risks.”

The Minister then proceeded to announce a “debt operation  programme” at paragraph 276 thus:

“… to sufficiently address these risks and bring the debt stock  to sustainable levels, government is embarking on a debt  operation programme. The debt operation programme among  other measures will address the internal and external  imbalances in the economy

Indeed, the Minister only used the phrase “debt exchange  programme” once in the 2023 Budget in one of the concluding  paragraphs (see paragraph 964) when he indicated that the  Government will execute a debt exchange programme. The Minister  did not provide any details or parameters for us to appreciate the  extent of the proposed debt exchange programme. The information  was just scanty.

On 5th December, 2022, the finance minister in announcing the  commencement of the debt exchange programme [without engaging  necessary stakeholders as promised in paragraph 278 of the 2023  Budget Statement] gave a sad report of Ghana’s debt situation:

“The Debt Sustainability Analysis (DSA) demonstrated  unequivocally that Ghana’s public debt is unsustainable, and  that the Government may not be ab le 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.”

So much for a solid Economic Management Team. “We have the men”  indeed!

Ladies and Gentlemen, the question is; How did we get here? How  did we get to this hapless situation as a sovereign State? How did we  get to this pit? Simple. Reckless borrowing! Sadly, the NPP  Government led by Nana Addo-Bawumia has not learnt any lesson.  The NPP was not only reckless in borrowing but it has been reckless  in announcing and implementing the Debt Exchange Programme. It  is clear that the NPP Government did not properly think through this  whole idea of debt exchange programme. This has led to the manifest  confusion in the implementation of the ongoing debt exchange  programme. Ghanaians will recall that during the Sunday, 30th October, 2022 Address to the Nation, the President assured all of us  that Government’s negotiations with the IMF will not affect individual  and institutional investors. The President said:

“I also want to assure all Ghanaians that no individual or  institutional investor, including pension funds, in Government  treasury bills or instruments will lose their money, as a result

of our ongoing IMF negotiations. There will be no “haircuts”, so I urge all of you to ignore the false rumours…”

Shortly after the presentation of the 2023 Budget Statement, the  finance minister, on 4th and 5th December, 2022 also announced to  the whole world that “There will be NO haircut on the principal of  bonds” and that “Individual holders of bonds will not be affected.”

Talk about the sudden U-turn to include individual bond  holders. 

It is trite knowledge that substantial number of moneys in financial  institutions come from private individuals. It is, therefore, highly  reprehensible for the finance minister to say that financial  institutions will be affected by the debt exchange programme but  individual bonds holders will not be affected. What kind of warped  logic is this?

The failure of the Nana Addo / Bawumai Government to fully engage  the relevant stakeholders in the Debt Exchange Programme has led  us to this confused state and implementation challenges.

The Debt Exchange Programme is a risk to financial institutions and  to insurance companies. Our banks and other financial institutions  are still reeling after the infamous financial sector bailout. The Debt  Exchange Programme will further exacerbate the already perilous  financial sector. The last thing Ghanaians would want is a total

collapse of the financial sector by a government which went haywire  on a borrowing spree. The future sustainability of our insurance  companies cannot be guaranteed under this poorly crafted Debt  Exchange Programme. Indeed, the Debt Exchange Programme as  proposed and implemented now cannot be in the interest of our  financial institutions and insurance companies. It certainly is not in  the best interest of Ghanaians.

It is on this score, that we the NDC Minority Group calls on the Nana  Addo /Bawumia Government to immediately suspend the ongoing  Debt Exchange Programme. There should be deeper consultation  and greater transparency about Ghana’s total debt and its  management. The Nana Addo /Bawumia Government cannot  continue to manage Ghana’s economy like a private entity.  Ghanaians deserve to know how much is involved and how long the  debt exchange will take. It is not just about people’s investment, but  it is much more about people’s lives and livelihood. The Nana Addo  /Bawumia Government should suspend the Debt Exchange  Programme now!

STATE OF OUR ECONOMY 

An unsustainable public debt on which we have defaulted, a rapidly  depreciating currency, hyper inflation and rising interest rates,  an excruciating cost of living crisis resulting in considerable  harsher economic conditions which has led to mass suffering of  Ghanaians, are but a few of the symptoms of the economic

collapse supervised by Alhaji Dr Mahamud /Bawumia and his  Economic Management Team.

During the 2020 election year in particular, the Akufo Addo/Bawumia government consigned fiscal discipline to the  dustbin and resorted to high-expenditure, populist and misguided  programs which contributed immensely to the accumulation of  Ghana’s current unsustainable Public Debt.

The inevitable but dire consequence of this reckless and irresponsible  behavior was soon to manifest after the elections.

Even when it became abundantly clear, that an IMF program was the  surest way to halt the decline of the Ghanaian economy and restore  badly needed investor confidence, Alhaji Bawumia and his EMT  refused to budge, preferring instead to sell a dubious narrative that  they had capacity to resolve the challenges without external  intervention.

They were however, compelled In July 2022, to change their  intransigent position this tune and applied to the IMF for a financial  “bail out” of US$ 3 billion.

A Debt Sustainability Analysis (DSA) conducted by the IMF revealed and confirmed the Minority’s earlier position, obvious, that Ghana’s  debt was unsustainable and as a prerequisite for granting Ghana’s

request, we were required to bring our total Public Debt to a  sustainable level of 55% of GDP.

It is in a bid to meet this IMF conditionality that this government has  embarked on a Debt Restructuring Program dubbed a Debt Exchange  Program to bring our debt obligations to sustainable levels.

Stripped of the fancy jargon, this means that both domestic and  external bond holders will not be receiving interests and principal  payments due them from government in the agreed amounts and  within the agreed timeframe.

This is cynically referred to as “haircuts” and will be especially  catastrophic for domestic bond holders who primarily consist of  banks, pension schemes, other financial institutions, and  individuals.

By June 2022, Ghana’s Total Public Debt had ballooned from GHS  120.4 billion in 2016 (55.9% of GDP) to GHS 467.4 billion (78.3% of  GDP) and this is projected to rise to 104% of GDP at end- 2022 when  contingent liabilities of State-Owned Enterprises are included.

The international capital market which had been available to the  Ghana Government to sell Eurobonds lost faith in our ability to  service loans and shut us out.

Even so, there was sufficient time and opportunity to avert economic  collapse in 2021 by taking advantage of some debt relief initiatives  tabled by some multilateral and bilateral partners to reduce our debt.  Among these was the Debt Service Suspension Initiative (DSSI) which  would have resulted in the lowering of the amount of revenue we  pumped into debt service.

Beyond that, was the Common Framework for Debt Treatment  proposed by the G20 countries which would also, have led to  significant debt write-off.

But characteristic of this administration, they chose the naïve and  reckless path of borrowing to resolve the problems.

MAJOR ISSUES WITH DOMESTIC DEBT EXCHANGE PROGRAM  

1. Implications on entire financial / banking Sector. Ghana’s  financial sector will be severely and adversely impacted by the  Domestic Debt Exchange Program. With over GHS 60 billion  locked up in government bonds, the non-receipt of any interest  this year and paltry sums in subsequent years, will prove the  undoing of some banks. In the case of some state-owned banks,  as much as 70% of their annual revenue comes from their  investments in government bonds. Not paying them any interest  in 2023 would effectively sound the death knell to these banks  with its attendant consequences on depositors and employees  who would have to be laid off. Restructuring domestic debts will

undermine the health of the banking system since Capital  Adequacy will become a challenge

1. Effects on Pension funds- Pension funds will suffer a  significant drop in value especially, Tier 2 and 3 pension  payouts will drop further from their already low levels. Tier 1  (SSNIT) reserves will drop in value and SSNIT’s capacity to pay  will suffer. Reserves of Insurance companies will fall with  implications for benefit payments

Effects on individual bondholders– the inclusion of individual  bondholders in the Domestic Debt Exchange, contrary to initial  assurances from both the President and his finance minister, would  all but wipe out Ghana’s middle class and impose harsh suffering on  them, their families, and dependents. We now know that the reality  is different. What Minister Ofori-Atta announced is different from  what is being implemented. Ghanaian individuals have started  receiving text messages from their banks. Yesterday, about 1.3  million affected individual bold holders petitioned Parliament for a  reversal of the Government’s Debt Exchange Programme. This must  be the largest and voluminous petition on a single matter ever  presented to Parliament in our country’s history. It is inconceivable  to accept that individual bonds will be affected.

From the outset, there have been clear inconsistencies in pronouncements and the actual implementation. The haircut is real.  The NPP Nana Addo /Bawumia Government should give us a break!

The Nana Addo /Bawumia Government cannot borrow Ghana into a  ditch and further drive us into a bottomless pit.

RECOMMENDATIONS 

1. It is obvious that the Domestic Debt Exchange Program will  create extreme hardships for millions of Ghanaians and existing  financial institutions. It is also quite clear, that it was entirely  avoidable had the Akufo-Addo/Bawumia government heeded  wise counsel from the opposition and Civil Society on prudent  management of our finances and economy.
2. It is obvious that the Akufo-Addo/Bawumia is transferring the  responsibility to address the debt burden it has created through  reckless borrowing and populist fiscal policies to only innocent  Ghanaians and the financial sector. For instance, the 2023  budget projects a primary surplus of only 1% which means that  we will be reducing the public debt by only 1% of GDP this year.  This also means that not enough expenditure cuts are being  made by government at a time when it is almost forcibly asking  bondholders to forfeit interests and principal payment due  them. We demand further demonstration of responsibility from  government through more substantial cuts in non-essential  expenditure and a reduction in the humongous size of  government.
3. We are at a loss as to why individual pension contributors have  not been offered the same exemptions that Tier 1 and 2

contributors have been given. This anomaly must immediately  be rectified.

4. The inclusion of individual bondholders in the DDE is the  biggest transfer of funds from the pockets of Ghanaians to the  government and will leave affected persons, mainly the middle  class, impoverished while worsening the plight of the poor. This  must immediately be stopped.
5. The Akufo-Addo/Bawumia government is simply imposing an  almost 80% tax in present value terms on the savings of  Ghanaians and our bank balances without any consultations  with affected individuals
6. They are also imposing about 80% tax in present value terms  on bank capital and deposits.

In view of the above,  

WE CALL ON THE GOVERNMENT TO IMMEDIATELY SUSPEND  THE DOMESTIC DEBT EXCHANGE PROGRAM AND ENGAGE IN  MORE COMPREHENSIVE CONSULTATION ON THE MATTER  WITH ALL STAKEHOLDERS AND THE GHANAIAN PEOPLE. 

WE CALL ON ALL STATKEHOLDERS FOR A NATIONAL  DIALOGUE ON THE STATE OF OUR ECONOMY AND DEBT  EXCHAGE PRGRAMME WITH THE VIEW TO ACHIEVING THE  MOST WORKABLE AND LEAST PUNITIVE STEPS THAT PROTECT  GHANAIANS AND HOUSEHOLDS FROM THE DISASTROUS 

EFFECTS OF THE DOMESTIC DEBT EXCHANGE PROGRAM AS  CURRENTLY DESIGNED. 

WE WISH TO TAKE THIS OPPORTUNITY TO INDICATE OUR  INTENTION TO EMBARK ON NATIONWIDE ROAD SHOWS TO  FOSTER DEEPER UNDERSTANDING OF THIS MATTER AND  RALLY GHANAIANS TO DEMAND A MORE FAVOURABLE  RESOLUTION OF THE UNPRECEDENTED ECONOMIC CRISIS  THE BAWUMIA-LED ECONOMIC MANAGEMENT TEAM HAS  PLUNGED US INTO. 

Long Live the Republic!

Hon Haruna IDDRISU 

Minority Leader & 

MP, Tamale South