The Caucus for Democratic Governance (CDG-GH) has in a press release outlines the dangerous economic implications of the government’s Domestic Debt Exchange Programme (DDEP).
According to the Political think-tank, the implications of the programme which was birthed as a result of the government’s poor management of the Ghanaian economy, reckless borrowing and corruption are creating Financial Chaos and Haircuts at Gunpoint.
It furthered that the call for “the rejection of the DDEP by bondholders is based on arguments about the time and value of money. That is, even though the bondholders will get their money back; getting it at a future date, means the value of the money will reduce due to inflation pressures. Besides, bondholders live on the interest they receive from the government. Not getting the interest will therefore affect their livelihood. The DDE was to affect Securities, private Banks and investment Companies, Insurance Schemes, pension funds, private banks, resident, and non-resident investors, pensioners and bondholders”
Below is the full Press Release
CAUCUS FOR DEMOCRATIC GOVERNANCE, GHANA (CDG-GH)
20th February 2023
DOMESTIC DEBT EXCHANGE PROGRAMME (DDEP) AND ITS IMPLICATIONS
Financial Chaos
The Caucus for Democratic Governance (CDG-GH) has of late, observed with dismay, the Government`s, irresponsible borrowing, corruption and senseless spending which has plunged the country into desperation and financial chaos. Instead of reducing expenditure and cutting down imports, the Government arrogantly insists on increasing taxes, putting its hands into our “momo” wallets and giving pensioners and bondholders unacceptable haircuts, using a Domestic Debt Exchange Program (DDEP).
Haircut at Gunpoint
Instead of haircut at gunpoint, the pensioners and bondholders are asking the Finance Minister to go back to the drawing board and rework the terms of the DDEP or go back to the negotiating table with IMF or reverse the fiscal indiscipline. The dynamics of fiscal indiscipline show that Article 76 of our Constitution prescribes minimum 10 Ministers and maximum 19 Ministers for Ghana. Currently Ghana`s Ministers including Regional Ministers, add up to 86; costing the taxpayer 78.2 billion ghc. Reducing the Ministers by half will save 39.1 billion ghc; which can save us from all forms of haircut. Besides, the BoG has printed over 40 billion ghc unlawfully to support Govt spending; leading to high inflation and high cost of living which is detrimental to the economy. It was indeed disheartening to see pensioners and aged bondholders who have paid their monies to the government, now picketing at the Ministry of Finance, because the government arbitrary wants to change conditions of the bonds.
Bond
Generally governments borrow money domestically (from its citizens) and internationally to run their economies. They accomplish this by issuing debt instrument, such as bonds, through financial intermediaries such as Banks and other financial Institutions. The government promises to pay interest on said amounts of money (principal) after a given period of time. This agreement is what is referred to as Bond.
Debt Exchange (DE)
The government now seeks through the DE to amend the duration and interest promises made to the bondholders who loaned the money. In other words, the government is swapping the agreement it had made with the bondholders. The government is now promising four new bonds, which are expected to mature in 2027, 2029, 2032 and 2037. They are expected to earn 0% interest in 2023, 5% interest in 2024 and 10% in 2025 which will continue till maturity of the bond. This new agreement invariably forces them to accept the new unfavourable interest and new duration; hence the name debt exchange.
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Implications of the Debt Exchange (DE)
Rejection of the DDEP by bondholders is based on arguments about the time and value of money. That is, even though the bondholders will get their money back; getting it at a future date, means the value of the money will reduce due to inflation pressures. Besides, bondholders live on the interest they receive from the government. Not getting the interest will therefore affect their livelihood. The DDE was to affect Securities, private Banks and investment Companies, Insurance Schemes, pension funds, private banks, resident, non-resident investors, pensioners and bondholders
Finally the pensioners and bondholders have been exempted. My God! why should picketing in the afternoon sunshine, by aged people be the only way to free their bonds from “Rambo” style aggression ?
Dr E. K. Hayford
Executive Director
Caucus for Democratic Governance
CDG-GH
027760633 8
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