Ghana to start domestic debt exchange on Monday

Ghana to start domestic debt exchange on Monday

The Finance Minister Ken Ofori-Atta said the move would restore macroeconomic stability and end the West African country's worst economic crisis in a generation and that the ACCRA Reuters- Ghana will launch a domestic debt exchange on Monday.

In a video address on Sunday, Ofori-Atta said that Ghana's government had finished its debt sustainability analysis, but he didn't provide any information on plans for foreign debt that are anxiously awaited by international creditors.

He said that they are confident that these measures will contribute to restoring macroeconomic stability.

Local bonds maturing in 2027, 2029, 2032 and 2037 will be exchanged for new bonds under the domestic debt exchange, and their annual coupon will be set at 0% in 2023, 5% in 2024 and 10% from 2025 until maturity.

The International Monetary Fund is in talks with the government for a support program that will relieve its debt distress.

The local currency has plummeted more than 50% against the dollar in 2022, while the central bank hiked its main lending rate to 27% last Monday after inflation hit a 21 year peak in October.

Ofori-Atta said the government wanted to minimize the impact of the debt swap on small investors and wouldn't apply the terms to Treasury bills or holders of individual bonds. He said that there will be no haircut to the principal of the bonds.

It should reinforce the expectation that Ghana is on its way to an IMF staff level agreement. As a result, the Ghana cedi is expected to benefit, said Razia Khan, Chief Africa Economist at Standard Chartered.

There was little question that Ghana needed LCY local currency debt coupon reductions to restore macro sustainability. She said that by excluding retail investors, this is likely to be more politically palatable.

How the plan will affect individuals is still to be determined, as many people hold bonds through mutual and pension funds.

Ofori-Atta said the government would set up a financial stability fund with the support of development partners to help domestic financial institutions, including banks and pension funds, weather the swap.

Nothing will be lost, nothing will be missing, and nothing will be broken. He said that they will recover all.