\n
Government is contemplating a plan to build financial buffers and enhance its debt repayment capacity, following the completion of external debt restructuring with the official creditor committee (OCC) and Eurobond holders.<\/strong><\/p>\nDr. Mohammed Amin Adam, Minister of Finance, during a recent media briefing mentioned this strategy that aims to capitalise on debt relief and economic growth to prepare for future debt obligations.<\/p>\n
The minister clarified that while recent debt cancellations and restructuring don\u2019t provide immediate cash inflows, they offer vital financial breathing room.<\/p>\n
\u201cThe savings and cancellation are not bringing us physical cash,\u201d Dr. Adam said. \u201cWhat we would have paid, we will not pay.\u201d<\/p>\n
Government is considering an approach inspired by strategies employed during the Highly Indebted Poor Countries (HIPC) era. Dr. Adam explained: \u201cLike the HIPC era, when debt service was budgeted for and that amount put into a special account to do what we called HIPC projects. It\u2019s one way of handling this\u201d.<\/p>\n
Central to this potential strategy is the utilisation of Ghana\u2019s existing sinking fund. As the economy grows and revenues increase, government is exploring the possibility of making specific allocations to this fund.<\/p>\n
\u201cYou could do allocations specifically for the sinking fund to increase your debt repayment capacity in future,\u201d Dr. Adam noted.<\/p>\n
The plan under consideration also involves implementing reforms to source additional funding for the sinking fund, including improving the financial management of state enterprises. The minister suggested government could decide that dividends paid by the state enterprises should go to the sinking fund also, to build the needed buffers.<\/p>\n
This proactive approach aims to create a financial cushion for future debt repayments. The finance minister emphasised: \u201cEven though we are not willing to pay this money, we need to build buffers in readiness to repay; so that when it\u2019s time, when it\u2019s due, then it is easier for us to repay\u201d.<\/p>\n
Samuel Danquah Arkhurst, Chief Economics Officer and Director of Treasury and Debt Management Division at the Ministry of Finance, provided context on the debt relief aspects. He highlighted significant reductions in interest payments and debt stock, particularly concerning Eurobonds.<\/p>\n
\u201cWith regard to the Eurobond, we have total reduction of interest payment by US$4.4billion for the period 2023 to 2026,\u201d Mr. Arkhurst explained. He also noted a 37 percent nominal haircut on Eurobonds, resulting in a US$4.7billion debt cancellation.<\/p>\n
Ghana\u2019s debt restructuring journey began in December 2022, with the announcement of a debt standstill. After months of negotiations, agreements were reached with official bilateral creditors and Eurobond holders in June 2024.<\/p>\n
The restructuring of official bilateral loans is expected to lead to significant debt service relief. Mr. Arkhurst elaborated: \u201cSo we are suspending; that is still a relief, because you don\u2019t have to create funding to pay for it now. So you are suspending an amount of US$2.8billion which you have accumulated for 2023 to 2036.\u201d<\/p>\n
For Eurobonds, the agreement involves a 37 percent nominal principal haircut \u2013 equivalent to a 45 percent market value loss \u2013 resulting in substantial debt cancellation and debt service savings.<\/p>\n
Dr. Adam emphasised that these are still proposals under discussion. \u201c\u2026and government really will look into all these proposals and take a decision on the best way forward to make the best use of savings we are making from this debt restructuring,\u201d he stated.<\/p>\n
Government is also considering using these potential savings for development projects, similar to the HIPC-era initiatives. \u201cWe could also do projects like we did for HIPC. You can call this one, we won\u2019t call it Eurobond projects or OCC projects. We can find a convenient term for that,\u201d Dr. Adam proposed.<\/p>\n
The success of this approach will likely depend on several factors, including sustained economic growth, effective implementation of proposed reforms and continued support from international partners.<\/p>\n
The upcoming mid-year budget review is expected to provide more detailed figures and potential adjustments reflecting these debt relief measures. This review will likely offer a clearer picture of how government intends to leverage the newfound financial flexibility to strengthen Ghana\u2019s economic position and prepare for future financial obligations.<\/p>\n
The proposed buffer-building strategy represents a forward-thinking approach to debt management, aiming to prevent future crises and ensure Ghana\u2019s long-term financial stability. By learning from past experiences and adopting proactive measures, government hopes to create a more resilient economic framework that can withstand future challenges and support sustainable development.<\/p>\n
Source: thebftonline.com<\/p>\n
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Government is contemplating a plan to build financial buffers and enhance its debt repayment capacity, following the completion of external debt restructuring with the official creditor committee (OCC) and Eurobond holders. Dr. Mohammed Amin Adam, Minister of Finance, during a recent media briefing mentioned this strategy that aims to capitalise on debt relief and economic […]<\/p>\n","protected":false},"author":1,"featured_media":196351,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[],"class_list":["post-196350","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business"],"yoast_head":"\n
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