A professor of Finance at the University of Ghana, Professor Godfred Bokpin, has asked the Government to repackage its domestic Debt Exchange Programme in a manner that would preserve financial sector stability.
He said the Staff Level Agreement reached with the International Monetary Fund (IMF) “is good news” but cautioned that a rejection of the Government’s domestic debt restructuring programme could undermine progress.
Speaking to journalists at in Accra on Thursday to discuss the 2023 Budget, Prof. Bokpin said the Debt Exchange Programme “is not in good shape” and may “systematically weaken the balance sheet of the participating financial institutions.”
“If we are not careful, in our attempt to polish the public balance sheet, we may be creating some crisis that later would come to bite us.
“We all know that debt restructuring is unavoidable, but let’s do it in a way that preserves financial sector stability and enables the sector to be able to support the Government’s overall economic strategy,” he said.
Under the proposed Debt Exchange Programme, which was announced by the Government last week, existing domestic bonds as of December 1, 2022, would be exchanged for a set of four new bonds maturing in 2027, 2029, 2032 and 2037.
Also, the annual coupon on all these new bonds would be set at zero per cent in 2023, five per cent in 2024 and 10 per cent from 2025 until maturity – coupons would be semi-annual.
Prof. Bokpin said if the Government were able to reach some level of understanding with external creditors it would help expedite ongoing engagements with the IMF and further strengthen confidence in the economy.
“The domestic debt is contributing more to the interest cost and therefore that still needs to be restructured in a way that invites the participating financial institutions to the table,” he said.
Parliament approved the 2023 Budget document last week, paving way for the House to begin to consider various estimates of ministries, departments, and agencies by relevant sector committees.
Prof. Henry Kwasi Prempeh, Executive Director, Centre for Democratic Development, said the 2023 Budget presented an opportunity for the Government to take drastic measures to revive the economy under the current economic challenges.
“We missed the chance to press the reset button in this crisis,” he said. Prof. Prempeh disagreed with the Government’s decision to allocate GHS80m for the construction of the National Cathedral Project, saying: “this is not the time for vanity projects.”
Touching on tax administration, he said the Government must institute measures that would enable the state to do “means testing” so that taxes and social interventions would be targeted.
Prof. Abena Oduro, Associate Professor in the Department of Economics, University of Ghana, said the 2.5 per cent increment in Value Added Tax (VAT) would lead to an increment in prices, reduce value of real income, all of which could increase poverty.
“The reduction of the E-Levy rate will help to reduce the burden on the public, but the removal of the threshold will increase the burden,” she added.