Adnan Adams Mohammed
An official source has confirmed an imminent ‘haircut’ of investors funds in Government of Ghana (GoG) issued domestic long and short-term debt instruments.
This means that, investors who have invested their private funds in Ghana government’s Treasury notes may only receive a fraction, according to a widely circulated warning note by a Bloomberg publication.
The fraction, according various analyst, is currently pegged at 60-70 percent of investors total principal and interest invested. But, a finance and energy analyst, Alexander Kofi-Mensah Mould has further indicated that, what is yet to be established is if, at some later date, this haircut will apply to US$ denominated Eurobonds issued by GoG outside Ghana on the international Capital Markets; the markets are mute on this but the Eurobonds are trading for 40 cents to the dollar (That is, a haircut of 60%). This unpleasant news confirms a publication of this paper earlier this month which indicated a possible ‘haircut’ of investors funds in government debt instruments.
“Any attempt by government to give investors a haircut on their investment principle will result in Ghana not being able to go to the Capital markets for many years to come”, Mr Mould, in that publication said.
However, reacting to the confirmation to his earlier warner and caution to government on the implications of the possible ‘haircut’ alarm, the former Executive Director of Wholesale Banking at Standard Chartered Bank, asked the government to provide a solution that does not penalize Ghanaian citizens and rather favors foreign investors, that is, if they have no option but to give a hair cut to Investors – and to be fair to all Ghanaians in attempt to rebuild the collapsing economy.
“If you are bankrupt with ideas of how to meet your debt service and the only way is by reducing people’s savings, then you need to be fair and also institute a haircut in government payroll as well”, He fumed when reacting to the Blomberg publication on the imminent ‘haircut’ of domestic debts by government.
“It is absolutely unfair to penalize a group of Ghanaians that have decided to invest as a means of saving for future expenditure, and the poor pensioners who have put their trust in our government and invested in T-Bills, T-Notes and Bonds issued by GoG.
Mr Mould went on to reveal that “Not to be left out of this “haircut” are all workers of this country who have placed their funds, by law, in Pension Funds (including SSNIT and other private pension fund managers) who have invested in T-Bills and Bonds issues by GoG; Mr Mould alarmed that, the manner in which the government has planned to restructure it’s domestic debt will directly affect the banking sector negatively with banks posting losses, and also the pensions sector where the funds people have in their pensions being reduced significantly.
Bank losses will affect their stock market prices with investors of these stocks posting instant losses; “Doing so will cause serious harm to the banking sector. People will lose confidence in saving – Without savings, there will be no funds for companies to borrow and Many businesses will grind to a standstill. This will lead to layoffs and an increase in unemployment ” Mr Mould also stated that this is just the beginning and he wont put it past this government, who seem bankrupt with ideas and desperate, to do the impossible in the near future – to inflict a similar haircut on salaries of government workers and also citizens’ bank account balances.
The Blomberg publication captured that, “the country’s largest debt investors including local banks and pension funds are preparing to engage in discussion on debt reorganization that could entail extension of maturities and haircuts on principal and interest payments, according to people familiar with the matter, who asked not to be identified because they are not authorized to speak publicly.”
Meanwhile, in the earlier publication on the ‘haircut’ of investors funds as published by this paper, Mr Mould cautioned that, “Any attempt by government to give investors a haircut on their investment principle will result in the Ghana not being able to go to the Capital markets fo many many years to come.”
“This also could be resisted by many investors and there could be lawsuits by investor blocks which could drag Ghana’s current credit crunch; this option is like a road to perdition and only reserved for the non salvageable economies in the world.” The finance analyst tabled some alternative ideas on how the ‘Nana Akuffo Addo/Dr Mahmoud Bawumia government ‘ could resort to on addressing the glaring default in it’s debts as he enumerated the following options during the interview on how government could deal with the imminent credit crunch it faces.
“In the discussions with the IMF, GoG will be required to bring a performance improvement plan (PIP), which should focus on government reducing its expenditure and increase its revenue in the short term for the next two years to stabilize the fiscals, while IMF holds the government’s hand to seek some reprieve from Creditors (local and International) on its debt service.
“The first part, reducing expenditure could take the form of the rationalization of employment in the public and civil service (ie reducing staffing and staff costs) and most likely a freezing any increases in salaries and freezing employment in non-critical and non-core sectors for a few years, as well as not embarking on any projects or capital expenditure that can wait a few years.
“Another area is that, the NPP government will be asked to focus on is in curtailing most of the politically-lead programs/projects which will not lead to any substantial increase the GDP in the short term.” The outspoken former government appointee noted that, the government needs to determine whether the current challenge it faces is a structural one or if it’s pure mismanagement (where drivers of fundamentals remain strong) since the antidotes to curing both differ. He furthered his assertion indicating that, “I see the problem akin to what we had in Blackstars a few months ago: Do you change the coach or all the players?”
He lay the blame squarely on President Akufo Addo for keeping, an investment banker (Ken Ofori-Atta) as the finance minister, instead of appointing an astute finance guru, or an astute commercial banker, both of whom may have better knowledge of the financial credit market as well as financial risk management, to salvage the mess the wonton-borrowing Ken Ofori Atta has created.