UCC’s Dean of the School of Business has a message on the debt exchange program. On his Facebook page, Professor John Gartchie Gatsi made some profound recommendations on the subject.<\/p>\n
According to Professor Gatsi, the debt exchange program is a default announcement and a call for support to resolve the debt servicing burden by the government. He explained that the debt exchange program does not in any way take away the solemn and legal commitment to pay the principal at maturity and also pay a periodic coupon to the bondholders. “This legal obligation or covenant is such that the debtor( government of Ghana) is still a debtor whether there are cash flow\/revenue challenges or not”.<\/p>\n
“The debt exchange must be negotiated fairly for bondholders to accept the difficulties the government is facing to share part of the burden with the government. If this is not done then the entire process becomes hostile. The exercise should be fair to the financial system in general to foster a negotiated debt exchange program and this will keep bondholders still trusting the government. Everything must be done to maintain investor confidence to achieve the trustworthiness and creditworthiness of government instruments along the long-term path”.<\/p>\n
Professor Gatsi made it clear that the fact that the government has declared default does not mean the government has triggered a different status for itself. “Government is still a debtor. The Ministry of Finance is not a court to determine that individual bondholders will not get a favorable judgment in any legal action especially when the process was described as voluntary. In a democracy, individual bondholders are at liberty to go to court. The court has the choice to determine whether or not people should be scared about the government and its debt instruments going forward. The government indeed needs the support of bondholders in the debt exchange program but the critical question is whether the government should determine what it wants and not a negotiated deal”.<\/p>\n
Professor John Gartchie Gatsi further explained that the challenge now is that government debt restructuring in a high-interest rate regime may trigger a certain percentage of default by private sector debtors such as households, and micro, small and medium-sized enterprises. “So we await a boom in the non-performing loan portfolio of banks soon with the reclassification of assets with huge assets expected for impairment. This will create liquidity and capital challenges. We are in for another round of bank sector cleanup if care is not taken. Let us protect the financial sector and our banks. Already, banks generally are not allowed to pay dividends to shareholders on account of regulatory directives”<\/p>\n
The UCC Professor has recommended that the debt exchange program should be done in such a way that it does not affect the credit lines of banks or limit access to credit by the private sector. He stated that the debt exchange program should restore confidence and trust that is able to reconstruct the capital market and creditworthiness of government instruments.<\/p>\n
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