Opacity of GH¢15 billion Stability Fund leaves analysts concerned

The absence of clarity, as well as viability of the Ghana Financial Stability Fund (GSFS) to cushion sector actors against potential shocks from the Domestic Debt Exchange Programme (DDEP), remains a major concern, say analysts.

Announced by the Finance Ministry in partnership with the Financial Stability Council, the GSFS has a seed fund value of GH¢15billion; but analysts have questioned if the proposed amount will prove sufficient to cover potential losses from the Programme.

For instance, in its commentary on the DDEP, the Institute of Economic Affairs (IEA) acknowledged that in principle the fund is a welcome idea that will offer some cushion to the impacted institutions – particularly banks, which account for a third of the targetted instruments.

The policy think-tank however expressed concern that the fund’s value falls too short of estimated losses to the sector; the GH¢15billion is only 23 percent of what the banking industry alone might require.

“The question, however, is whether the seed money of GH¢15billion is adequate, especially when banks alone are reported to expect a financial impact of around GH¢65billion,” the IEA noted.

The Institute was also critical of the Bank of Ghana’s direct involvement in funding the GSFS, describing it as “concerning”. Its fear stems from the significant expenditure undertaken by the central bank in recent times – including GH¢10billion as its COVID-19 contributions in 2020 and budget support of GH¢42billion in 2022.

“Printing more money to support the GFSF will not only further heighten the public debt, but also inflation and currency depreciation as well,” it warned.

According to the IEA, it also remains unknown whether all expected contributions will be received – especially as the nature of contributions from development partners remain a mystery, and whether they will be in grants or loans is unknown.

“There is no free lunch,” IEA said, as it warns there will likely be trade-offs and that contributors will possibly have specific conditions to be met.

IEA’s sentiments were corroborated by the Dean of the University of Cape Coast (UCC) Business School, Professor John Gatsi, who told B&FT that the likelihood of interest payments for accessing the fund makes its counterproductive for financial institutions.

“We must look at this carefully. How can a government that owes these institutions and cannot pay say it is setting up a fund to support those it owes – and will likely charge them interest on the facilities? I find that puzzling,” he remarked.

In as much as development partners have been touted as major would-be contributors to the GFSF, Prof. Gatsi believes the identity of these partners – beyond the World Bank – and their level of commitment should have been communicated already.

The BoG has, so far, taken only the first step in providing regulatory forbearance on liquidity and solvency, and standardisation of the accounting treatment to be applied regarding the DDEP.

Furthermore, the apex bank will apply a reduction of cash reserve requirement ratio to 12 percent on local currency deposits; a reduction in the Capital Conservation Buffer to zero percent from 3 percent; and a slashing of Capital Adequacy Ratio to 10 percent from 13 percent, in addition to suspension of dividend payments and other payouts to shareholders.

Meanwhile, during the announcement of agreements reached between the Ministry of Finance and Ghana Association of Bankers (GAB) as well as the National Insurance Association (NIA) – regarding the terms of their participation in the DDEP – it was mentioned that clarity on the operational framework and terms of access to the fund had been spelled out.