Ghana’s Bond Exchange Program: Calming The Markets, Constructive Engagement and Seeking Alternatives

The objective of my engagement with the media yesterday was to avert an incipient run on our banks and fund managers, after I received several calls from very important senior citizens, high net-worth individuals and a number of individual bond holders and mutual fund investors who have been panicked from seeing unrealized investment losses on their account statements received from their financial institutions.

Based on independent legal review and advice and recognizing that the methods of this debt restructuring campaign hurriedly announced by the Finance Minister, Hon. Ken Ofori Atta had no legal bases, I decided to intervene to help calm the financial markets and ensure stability, and to spur a more constructive approach and new, more substantive engagements by Government with stakeholders to be able to navigate this precarious economic situation that this government has led our dear nation into.

I call on Government to come back to the table with stakeholders to discuss and chart a fairer bond exchange path, and to signal a more genuine commitment to resolving this frightening debt crisis imposed on the country, through articulating more serious fiscal consolidation measures over the short to medium term. Demonstrate to the country and stakeholders and be held to it, that the huge confiscation of domestic bonds value by Government and the huge loss to bondholders, especially our aged pensioners, would not continue to be squandered on inefficiencies and frivolous expenditure that this Government is a well-known legend in.

In particular, the spending on the large size Government and needless ministries that should actually be combined, spending on the inexplicably large number of unproductive “courtiers” that consume a gargantuan budget at the Jubilee House, and funding of the ill-conceived and badly implemented Ghana Amalgamated Trust (GAT). Show your serious about managing the country’s debt going forward by announcing the scrapping of expenditures on the construction of the frivolous and needless national cathedral, and show concrete efforts and expedited action on the promise in the 2022 budget to scrap the development authorities in 2023.

In these direst of times in the nation’s history, Government must demonstrate a willingness to review/ scale back some the freebies that are impacting fiscal consolidation efforts negatively, with a view to reinstating them when fiscal performance improves. The Free SHS program can be reviewed to rationalize expenditures over the medium term budgets, with a targeting framework agreed to support the program. As laudable as they are, the nurses and teacher training allowances could be looked at and alternative support provided to students, to help create fiscal space.

Government may explore the possibility of a sunset tax regime on interest income and capital gains, which by some estimates could generate about Ghc10 billion to Ghc15 billion a year in additional tax revenue, whilst at the same time offering competitive income returns to bondholders.

In this debt restructuring proposal by Government, it is important that Government (for the first time) in its 6-year tenure considers seriously the impact of its policies and actions on the growth and development of the burgeoning capital markets it came to meet and how it affects the markets capacity/ mandate to foster capital formation for sustainable national development. Government actions and inactions have already caused so much loss of value for bond and equity investors and the markets over the past 6 years.

In crafting and announcing this bond exchange, did Government give any serious thought (for the first time) to its continuing ability to partly finance the fiscal deficit optimally in the domestic treasury bond market, any thought to fostering continuing market-based pricing of various bonds on secondary market, any thought to fostering a rebound in general asset prices which have deteriorated so badly under this very, very bad fiscal policy management over the past 6 years? Does this bond exchange program acknowledge and prepare for any of these issues?

I have had some engagements with selected subject matter experts over the past few weeks to clarify whether or not Government can disagree with the Attorney General’s opinion that the methods being used by Government are not right, and proceed to own and implement a program such as this announced imposition of a debt exchange program.

I do not pretend to have the answers or a superior position on such weighty legal questions except to say that Government must reconsider its bull-in-a-China-shop-rush, hold the breaks and address the fallout and the substance of the deficiencies immediately identified from its announced domestic debt restructuring plan.

This is a very important national assignment that needs the buy-in of stakeholders and we must strive to achieve that and carry everyone along. Importantly, because domestic debt restructurings are not common globally historically, how Ghana conducts this exercise, legal and methods, will become a case study for government financing globally forever. Let it not be said that Ghana did it the wrong way!!!!!!
The very bad fiscal management by this Government has made this Debt restructuring inevitable but it must be done in a legal way and through a consultative process.

I remain very much prepared to support Government to support our country resolve this huge debt crises in our history, and to help safeguard the assets of our investing citizens and institutions, build a resilient economy and guarantee livelihoods.

Ghana wins and we move.

By Hon Isaac Adongo, MP