5

Government replaces no-interest bonds with cash

Wed, 23 Sep 2020 Source: Goldstreet Business

Government has announced the release of GH¢3.5 billion to the receiver of the collapsed banks at other financial institutions topay depositors claims in cash and no longer in bonds.

Hence depositors who received commercial paper in the form of bonds can liquidate the bonds immediately and receive cash without the payment of any penalty in the form of a discount

The move by government is in response to protests from depositors who have argued that the bonds given them in lieu of cash refunds of their locked up deposits would lead them to lose up to half the value of those deposits.

This is because the bonds issued would not pay interest but would only be converted into cash in five installments over five years.

At the current inflation rate of 10.5 percent recorded for August 2020, and compounded over a five year period this would mean that depositors would end up getting barely 40 percent of the value of their locked up monies in today’s terms.

Their situation was further complicated by the fact that the bonds could only be redeemed through Consolidated Bank Ghana, which had been mandated to effect redemption of the bonds once as year.

This meant that depositors could not shop around among the various banks for the one willing to discount their bonds – and thus pay them immediately rather than in installments over five years – at the lowest discount rate.

Effectively therefore depositors wanting to sell off the bonds to CBG would have to accept whatever discount rate that bank was offering.

Some affected deposits claim that the bank was offering discount rates as high as 25 per cent which would leave accepting depositors with only 75 percent of the face value of their bonds.

The decision by government to pay fully depositors in cash thus puts to rest a potentially ugly stand off between the two; depositors had been openly threatening to vote against the the incumbent government at the impending general elections, a stance believed to have influenced its turn around.

It is not yet clear how government will finance the cash payments which have not been budgeted for. However, with the fiscal deficit already heading for a record high 11.4 percent of Gross Domestic Product (GDP) this year as a result off COVID-19’s impact, government is in a position to simply add it to the deficit and claim extraordinary circumstances.

Source: Goldstreet Business
Related Articles: