The policy research institution maintained that a national consensus among key stakeholders, such as Parliament, investors, civil society organisations (CSOs) and the citizenry, would help accelerate the country’s recovery efforts and avoid the mistakes that led the economy into its current challenges.

Addressing a 2023 budget review forum at the institute yesterday, the Director of ISSER, Professor Peter Quartey, said the debt-restructuring exercise launched by the government last Monday was a requisite to enable the country to secure an International Monetary Fund (IMF)-backed programme and restore macroeconomic stability in the short term.

He said the government needed to work in collaboration with the opposition in particular to execute a successful debt-restructuring programme.

“The government should deepen consultations, while the opposition engage meaningfully to avoid the mistakes of the past,” Prof. Quartey said.

The context

The government last Monday launched the Domestic Debt Exchange programme which was first announced in the 2023 budget.

The programme involves the swapping of existing domestic bonds with longer-dated bonds that will take between five and 14 years to mature in 2037.

This means the extension of the repayment period for the bonds issued and held locally to allow for a staggered and phased payment of both the interest and the principal.

The annual coupon on all of these new bonds will be set at zero per cent in 2023, five per cent in 2024 and 10 per cent from 2025 until maturity.

It does not affect treasury bill holders but institutional and individual bondholders registered in the Central Securities Depository (CSD).

However, a couple of hours after the announcement, a number of stakeholders and institutions raised concerns about the arrangement and sought various clarifications, with almost all the groups claiming they had not been consulted.

While the Minority in Parliament said the form and the structure of the exercise were counter-productive and would, therefore, not accept it, the Trades Union Congress (TUC) indicated that it was concerned about the programme’s potential negative impact on workers' pensions.

A financial advisory firm, Deloitte Ghana, on the other hand, sought some clarity on whether investors would have the option of immediately liquidating their investments or be forced to roll over onto the new programme.

The Ghana Registered Nurses and Midwives Association (GRNMA) also expressed dismay and disappointment at the development, saying pension funds were a collection of contributions of individuals and the managers alone could not decide for all.

What led to this

Prof. Quartey said the current woes had been due to a compendium of factors, including the effects of the COVID-19 pandemic, the financial sector clean-up, the energy sector debt, the Russia-Ukraine War, excessive spending during the 2020 elections, as well as borrowing to finance capital expenditure.

However, he said, the country seemed to have borrowed beyond its sustainable threshold, with no buffer to absorb major shocks.

With the IMF continuing to caution Ghana since 2014, he said, foreign inflows had also not been adequate to meet demand pressure, thereby putting pressure on the exchange rate.

“In addition, the high fiscal deficit and downgrade by the rating agencies led to capital flight, while, on the domestic front, the lack of confidence in the local currency is worsening the exchange rate depreciation and high inflation,” he said.

Painful exercise

The economist indicated that the debt-restructuring exercise would help restore confidence through the IMF-backed programme, but it would be a painful exercise, with severe repercussions on the financial sector and mutual and pension funds.

He indicated that further consultations and consensus-building were necessary to avoid the experiences that engulfed the voting to consider the Electronic Transfer Levy (E-Levy) in Parliament.

“The restructuring of foreign debt/bonds has long-term repercussions on future portfolio inflows. Unfortunately, a default is not an option and we have to brave the storm,” he added.

Reduce size of government

Prof. Quartey added that the 2023 budget was expected to restore macroeconomic stability under an IMF programme.

He said key factors expected to be addressed by the budget included enhanced revenue mobilisation, ensuring fiscal discipline, addressing debt challenges, restoring macro stability and confidence through an IMF-backed programme.

The revenue-enhancing measures, he said, were increase in the value added tax (VAT), a review of the E-Levy, ensure tax efficiency, non-tax revenue, the removal of benchmark values and other exemptions.

He explained that the increase in the VAT and cost-cutting measures in the public sector should be complemented with a reduction in the size of the government to achieve the desired outcome.

Build resilient economy

Going forward, Prof. Quartey said it was expected that the programmes outlined in the 2023 budget would restore macroeconomic stability and build a resilient economy.

To achieve that, there was the need for fiscal consolidation — raising revenue and reducing expenditure, including reducing the size of government, he added.

“The central bank should increase the supply of forex and clamp down on the operations of the ‘black market’ and also put in measures to sanitise that market,” he stressed.