Finance Minister Ken Ofori-Atta has announced that Ghana will launch a domestic debt exchange on Monday. He is hopeful that this will help the West African country recover from its worst economic crisis in a generation.
In a video address on Sunday, Ofori-Atta announced that the government of Ghana had completed a debt sustainability analysis. Still, he offered no details on the country’s plans to deal with its large foreign debt.
“We are confident that these measures will contribute to restoring macroeconomic stability,” he said.
As part of the domestic debt swap, holders of 2023 bonds will receive 2024 bonds with a 5% coupon, 2025 bonds with a 10% coupon, and 2026 bonds with a 10% coupon.
The government has approached the International Monetary Fund about a possible aid programme to help alleviate the country’s debt burden.
With inflation at a 21-year high in October, the central bank increased its main lending rate to 27% last Monday. Meanwhile, the local cedi currency has fallen by more than 50% against the dollar in 2022.
According to Ofori-Atta, the government will not apply the terms of the debt swap to Treasury bill holders or holders of individual bonds to lessen the impact on small investors. He also assured investors that the bond principal would remain the same.
“It should … reinforce expectations that Ghana is on its way to an IMF staff-level agreement. We expect the Ghana cedi to benefit as a result,” 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. By excluding retail investors, this is likely to be more politically palatable,” she added.
Many people have bonds through mutual and pension funds, so it is unclear how the plan will affect them personally.
Ofori-Atta announced that, with the help of development partners, the government would establish a financial stability fund to assist domestic financial institutions such as banks and pension funds in weathering the swap.
“I say to you, nothing will be lost, nothing will be missing, and nothing will be broken. We will, together, recover all,” he said.