Debt restructuring: 94% of Tier 2 pension contributions may suffer losses

Reports have stated that GH¢3.7 billion of the GH¢3.9 billion Tier 2 pension contributions, representing about 94% held in government securities have the probability of being affected by a debt restructuring programme. Conversations on a possible debt restructuring programme have begun popping up as Ghana strives to ensure its debt is sustainable. This is because the country is seeking a financial bailout from the International Monetary Fund. However, a debt restructuring will affect the returns on investments when the yield-to-maturity period is extended or a ‘haircut’ policy is implemented. Debt restructuring simply means when a country or company reviews the terms and conditions of the payment of loans in order payment easier or more flexible. A ‘haircut’ policy in debt restructuring, on the other hand, refers to when interest rates on outstanding debts are reduced. From this narrative, in the case of Ghana, when debt restructuring happens, returns on Tier 2 pension contributions will reduce thereby affecting the maturities of the securities. The Tier 2 contributions have been largely invested in government bonds due to their low-risk factor. Meanwhile, a five-member committee has been constituted by the government to lead discussions with financial sector players on Ghana’s debt management. The Finance Ministry noted that: “The Committee will be consultative and will among other things lead discussions with the financial services industry and other stakeholders to provide industry-wide inputs and transmit industry concerns on debt management strategy to the MoF and BoG.” “The stability of the domestic financial ecosystem is critical to a successful IMF-supported economic programme. The Government will take all necessary steps to protect the sector as we have done in the past,” the statement said on October 11, 2022. Watch the latest episode of BizTech below: SSD/FNOQ

Reports have stated that GH¢3.7 billion of the GH¢3.9 billion Tier 2 pension contributions, representing about 94% held in government securities have the probability of being affected by a debt restructuring programme. Conversations on a possible debt restructuring programme have begun popping up as Ghana strives to ensure its debt is sustainable. This is because the country is seeking a financial bailout from the International Monetary Fund. However, a debt restructuring will affect the returns on investments when the yield-to-maturity period is extended or a ‘haircut’ policy is implemented. Debt restructuring simply means when a country or company reviews the terms and conditions of the payment of loans in order payment easier or more flexible. A ‘haircut’ policy in debt restructuring, on the other hand, refers to when interest rates on outstanding debts are reduced. From this narrative, in the case of Ghana, when debt restructuring happens, returns on Tier 2 pension contributions will reduce thereby affecting the maturities of the securities. The Tier 2 contributions have been largely invested in government bonds due to their low-risk factor. Meanwhile, a five-member committee has been constituted by the government to lead discussions with financial sector players on Ghana’s debt management. The Finance Ministry noted that: “The Committee will be consultative and will among other things lead discussions with the financial services industry and other stakeholders to provide industry-wide inputs and transmit industry concerns on debt management strategy to the MoF and BoG.” “The stability of the domestic financial ecosystem is critical to a successful IMF-supported economic programme. The Government will take all necessary steps to protect the sector as we have done in the past,” the statement said on October 11, 2022. Watch the latest episode of BizTech below: SSD/FNOQ