Domestic Debt Exchange: Economist educates Ofori-Atta, Gabby on 'implicit haircuts'

Minister of Finance Ken Ofori-Atta announced a Domestic Debt Exchange on December 4, 2022; with the view that details of the said programme will be presented today, December 5.

One of three key points he put out in his four-minute address was the fact that "There will be NO haircut on the principal of bonds."

In the wake of back and forth about whether there will be haircuts on domestic bonds, Gabby Asare Otchere-Darko who was posting snippets of Ofori-Atta's address on Twitter highlighted the "no haircuts" point.

But reacting to that particular tweet, Economist and Political Risk Analyst, Dr. Theo Acheampong, explained that the view of Gabby and the Minister was misleading.

Quoting Gabby's tweet that read: "There will be no haircut on the principal of your domestic bonds," Mr. Acheampong clarified: "That's NOT TRUE, boss.

"The Fin Min said treasury bills are protected (full redemption) but other local debt instruments (e.g. fixed dep., bank debt holdings) are to to be exchanged for 4 instruments with different maturity dates & coupon payments. So there are implicit haircuts!"

The other two key points in Ofori-Atta's announcement relative to domestic bonds were: "Treasury Bills are completely exempted and all holders will be paid the full value of their investments on maturity," and "Individual holders of bonds will not be affected."

What Ofori-Atta said:

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

He stated in a 4-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.

That's NOT TRUE, boss. The Fin Min said treasury bills are protected (full redemption) but other local debt instruments (e.g. fixed dep., bank debt holdings) are to to be exchanged for 4 instruments with different maturity dates & coupon payments. So there are implicit haircuts! https://t.co/q1LW9QJ3dK

— Theo Acheampong, PhD (@mytheoz) December 4, 2022