Debt operation haircuts will be so steep ‘Ablakwa will be better off’ – Ato Forson explains

Cassiel Ato Forson, the Ranking Member on the Finance Committee of Parliament is one of those who first hinted that haircuts on investments will be inevitable because government needed to restructure unsustainable debts.

He has also serially lamented what he says is the mess created by the Nana Addo Dankwa Akufo-Addo government for which reason a domestic debt restructuring has been announced.

Whiles addressing a press conference (on December 5) called by the Minority Caucus in Parliament, he described government’s position that there will be “no haircuts” on principals and interests of domestic bondholders as a hoax.

In explaining his position, he used a colleague MP, Samuel Okudzeto Ablakwa's head and hair to drive home his point.

He explained how investors with the Daakye bond for example will record as much as 63% loss on their investment in present value terms, warning: “…the haircut is steep and that is what I call back bow, it is very steep and it is going to erode your hair completely Ablakwa will be better off,” which comment drew laughter from persons present at the presser.

“So let no one lie to you, we are in trouble. Ghana is in trouble,” he added.

Ato Forson stressed that with Ghana’s debt officially classified as ‘unsustainable,’ the simple meaning was that government is unable to pay debts in current shape and form hence the debt exchange programme.

He emphasized that by defaulting on its current domestic debts, “Ghana has announced default of its external debts. That is what it means.”

He forecasted that given current developments, rating agencies will by close of the week, downgrade Ghana to D status.

“Ghana will be the first country in the entire Africa ever to restructure its domestic debts. We have joined the league of Greece and Jamaica in the last 10 years,” he said.

How Ofori-Atta compared the Ghana operation to Greece and Jamaica

Ghana is not the first nation to undertake such Domestic Debt operation. To illustrate the point, let me cite the examples of just two countries among many

others in the last 10 years.

Jamaica resorted to such operations in the past, notably in 2010 and 2013. In both cases, it chose to trust the sense of responsibility of the Jamaican people and proceeded through a voluntary approach. This approach was highly successful, as more than 99% of holders of domestic bonds participated in the exchange.

On the contrary, in the case of Greece, the Authorities chose to undertake a coercive approach, whereby a law was passed to force people into participating. We intend to avoid as much as possible the Greek approach, as we strive to reach a consensual solution with our bondholders, which the is Ghanaian way.

In any case, the good news is that the Domestic Debt Exchange has yielded positive results both in Greece and Jamaica, and many others, and will certainly

put our economy on a much stronger footing. Greece has now recovered full market access.

We certainly anticipate a similar success story in Ghana. I want to assure you about the Government’s commitment to do what is necessary to succeed.

Ofori-Atta announces Domestic Debt Exchange:

The Minister of Finance announced a number of measures under government's Domestic Debt Exchange (DDE) programme late Sunday.

He stated in a four-minute address that the announcement was in line with government's Debt Sustainability Analysis as contained in the 2023 budget he presented to Parliament on November 24.

The Minister laid out among others the exchange of existing domestic bonds with four new ones as well as their maturity dates and terms of coupon payments.

He also addressed the overarching goal of the government relative to its engagements with the International Monetary Fund as well as measures to minimize impact of domestic bond exchange on different stakeholders.

"The Government of Ghana has been working hard to minimize the impact of the domestic debt exchange on investors holding government bonds, particularly small investors, individuals, and other vulnerable groups," he said before outlining three main measures:

• Treasury Bills are completely exempted and all holders will be paid the full value of their investments on maturity.

• There will be NO haircut on the principal of bonds.

• Individual holders of bonds will not be affected.

Watch the Minister's address below: