Ghana offers relief packages to banks participating in local debt exchange

Ghana is aiming to cut its debt-to-GDP ratio from 100 per cent to 55 per cent by 2027, as it struggles with interest payments.

News Agency of Nigeria • December 9, 2022

President Nana Akufo-Addo of Ghana (Photo Credit: @GhanaPresidency)

Ghana’s central bank has laid out relief measures for banks that participate in the government’s domestic debt exchange in a bid to allay their worries over its potential impact.

In a letter seen by Reuters on Friday, the West African country, which is going through its worst economic crisis in a generation, had on Monday launched a plan to exchange its local bonds for new ones.

The exchange would come with fresh maturity dates and coupon rates to help restore macroeconomic stability.

However, some groups representing financial institutions that hold Ghana’s debt have raised concerns that the restructuring as presented by the finance ministry would not work.

The relief measures in the central bank’s letter include the reduction of the cash reserve requirement ratio to 12 per cent on cedi deposits, and the risk-weights for new bonds to be zero per cent for calculating the capital adequacy ratio and 100 per cent for old bonds.

The letter dated December 8 and signed by Osei Gyasi, the head of the central bank’s banking supervision department said “the Bank of Ghana encourages all banks to fully participate in the Debt Exchange.’’

The West African producer of gold, cocoa and oil is aiming to cut its debt-to-GDP ratio from 100 per cent to 55 per cent by 2027, as it struggles with interest payments that the finance minister said have jumped to between 70 per cent and 100 per cent of revenues.

Other measures listed in the central bank letter to banks include reducing the Capital Conservation Buffer from three per cent to zero per cent, which it said would “effectively” cut the CAR from 13 per cent to 10 per cent.

It also said it expected banks to suspend dividend payments and other payouts to shareholders.

Banks can access a financial stability fund, which has a target amount of $1.2 billion to be raised from the World Bank and other international financial institutions, “as a last resort liquidity backstop”.

An International Monetary Fund team is visiting Ghana until Tuesday as the government aims to negotiate a relief package.

The Fund has not yet commented on the domestic debt exchange.

(Reuters/NAN)

We have recently deactivated our website's comment provider in favour of other channels of distribution and commentary. We encourage you to join the conversation on our stories via our Facebook, Twitter and other social media pages.