Revise entire Domestic Debt Exchange Program – Lord Mensah to government

Professor Lord Mensah, a fellow at Solidaire Ghana, a policy think tank has called for a revision of the entire exercise of the Domestic Debt Exchange Program (DDEP) by government.

The Economist fears government’s posture in the Domestic Debt Exchange Program (DDEP) exercise may drag out IMF Board approval and external debt restructuring into the last quarter of 2023 to the first quarter of 2024.

According to him, since the bank and non-bank sector stability plays a major role in a non-market economy like Ghana, it’s advisable for the government to stress-test those sectors before the debt exchange program.

“There seems to be no appreciation of the consequence of the entire DDEP on the domestic financial sector. The government should note that Banks and the Non-Bank (including pensions, rural banks, and insurance companies) sectors hold more than 84% of the domestic debt, and as a result, careless execution of the DDEP may spread the country’s debt distress to other parts of the economy, with likely effects on the financial stability and economic activity. The structure of the Domestic Debt Exchange Program (DDEP) will play a major role in achieving the necessary fiscal space whiles minimizing the risk to the domestic financial system and the broader economy. The government must sacrifice and cast its net wide to ensure borrower-creditor participation in the DDEP by lowering the relief it is seeking from the creditors,” a statement issued by Prof. Lord Mensah said.

He stressed: “To the extent that the financial stability support fund provided in the first and the revised DDEP is not enough, some of the institutions may need recapitalization, liquidity support, and in large regulatory measures.”

Nonetheless, he said the macroeconomic indicators like the exchange rate (Cedis to the Dollar) and inflation will see some stability compared to last year, due to the fall in global oil prices and other policies.

“The fall in global oil prices, the suspension of external debt payments by the government, and the possible IMF extended credit facility will have the potential to control the exchange rate. The control of the exchange rate will build up into a reduction in inflation since the greater part of the Ghanaian inflation is imported.”