BudgIT Ghana to the Government: Convert the Ministry of Finance (MoF) Loans to Central Bank Bonds (IOUs) as part of the domestic restructuring exercise

Ghana's public debt is unsustainable, and the government has announced a debt exchange program to restore its ability to service its debts and strengthen the local currency.

GCB Bank Plc, the country's largest lender by assets, posted a $50.5 million net loss for the year to December, its first since 1993, according to Bloomberg data (2023).

Standard Chartered Bank Ghana Ltd., the country's largest financial institution by market value, reported a loss of 297.8 million Ghana cedis, its first loss in over two decades.

Banks in Ghana have taken a US$1.4 billion hit as the country restructures most of its public debt, estimated at 576 billion Ghana cedis. The Guaranty Trust Holding Co., Nigeria's largest bank by market capitalization, has pledged to slow lending and bond trading in Ghana due to the country's deteriorating economic and financial situation. These losses in the bank sector are hurting the Ghanaian economy, limiting businesses' access to credit, resulting in job losses, and causing overall hardship to the citizens.

GCB Bank took a charge of 1.83 billion Ghana cedis after impairing its debt securities, while Standard Chartered Bank Ghana took a charge of 173 million Ghana cedis.

The nation's debt stock increased due to the energy sector crisis between 2013 and 2015, which resulted in massive expenditure demands. Furthermore, there was a massive banking sector clean-up in 2018, exacerbated by the COVID-19 pandemic and the Russia-Ukraine war, as well as the government's inability to repay its debt, which led to a decline in investor confidence.

The Akufo-Addo administration developed a redesign plan where Ghana traded GHC 87.8 billion in bonds that returned as little as 8.35%, resulting in losses for financial institutions. Also, the government has begun negotiations with international loan holders to finalize a US$3 billion bailout from the International Monetary Fund (IMF). According to the IMF, Ghana's debt is expected to be reduced to 55% of GDP by 2028. It is currently around 109% of GDP.

BudgIT Ghana recommends that the government convert the Ministry of Finance (MoF) loans to central bank bonds (IOUs) as part of the domestic restructuring exercise.

The central bank and the financial institutions must share the burden; given the lax overdrafts it extended to the government, it had to bear a large portion of the blame for the country's ongoing economic and financial difficulties.

It is also partly to blame for the recent high inflation. Taking some losses (write-downs) on loans extended to the central government is one way to share the burden. This is the path to resetting the economy to a more stable state that addresses the country's development challenges.