Debt Exchange: Stress tests conducted for banks, insurance firms, asset managers, others

Finance Minister Ken Ofori-Atta

Following the creation of the Debt Exchange Programme by the Finance Minister Ken Ofori-Atta, the Bank of Ghana (BoG) has announced that stress tests have been conducted by the relevant financial sector regulators to estimate the potential impact of the programme for banks, specialised deposit-taking institutions (SDIs), insurance firms, asset managers, collective investment schemes, pension fund trustees, and regulated pension schemes, that could result from their participation in the debt exchange.

The BoG said to help manage the potential impacts of the Debt Exchange on the financial sector, financial sector regulators will deploy all regulatory and supervisory tools to mitigate risks to financial stability.

“Regulators will assess impacts on a regular basis, and quickly address evolving risks in order to safeguard financial stability. To support and encourage full participation of financial institutions in the voluntary debt exchange,” a statement said.

PRESS RELEASE FSC GOVERNMENT OF GHANA DOMESTIC DEBT EXCHANGE – POTENTIAL FINANCIAL SECTOR IMPACTS AND MITIGATING SAFEGUARDS 7 12 22

The Finance Minister explained during the launch of the programme that the objective is to alleviate the debt burden in a most transparent, efficient, and expedited manner.

In this context, by means of an Exchange offer, he said the Government of Ghana has been working hard to minimize the impact of the domestic debt exchange on investors holding government bonds.

“In particular, it does not embed any principal haircut on Eligible Bonds, as we promised. Let me repeat this fact as plainly as I can, in this debt exchange individual holders of domestic bonds are not affected and will not lose the face value of their investments. So let us remove any doubt and discard any speculation that the Government is about to cut your retirement savings or the notional value of your investments.

“That is not the case. As already announced, Treasury Bills are completely exempted, and all holders will be paid the full value of their investments on maturity. There will be NO haircut on the principal of bonds. Individuals who hold bonds will also not be affected at all.

“Our domestic debt operation involves an exchange for new Ghana bonds with a coupon that steps up to 10% as soon as 2025 (with a first interest payment in 2024) and longer average maturity. Existing domestic bonds as of 1st December 2022 will be exchanged for a set of four new bonds maturing in 2027, 2029, 2032 and 2037.”

He further stated that “Predetermined allocation ratio are as follows: 17% for the short bonds, 17% for the intermediate bond, 25% for the medium-term bond and 41% for the long-term bond. The annual coupon on all of these new bonds will be set at 0% in 2023, 5% in 2024 and 10% from 2025 until maturity. Coupon payments will be semi-annual. For emphasis, this domestic debt exchange programme will not affect individual bondholders.

“This domestic debt exchange is part of a more comprehensive agenda to restore debt and financial sustainability. We are also working towards a restructuring of our external indebtedness, which we will announce in due course. This is a key requirement to allow Ghana’s economy to recover as fast as possible from this crisis. This is also a key requirement to secure an IMF support.”

By Laud Nartey|3news.com|Ghana