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Eurobonds and treasuries investors jittery over possible ‘haircut’

Foreign and domestic investors in Government of Ghana’s (GoG) Eurobonds and treasury bills are jittering over rumours of that, their principal investments might be given a ‘haircut’ as they mature.

This means, the investors will receive only a fraction of their investments. Further to the meaning of the ‘haircut’, is that, the investors will receive some pesewas to each Cedi (for GoG Treasury Investors) they invested in and/or cents to each dollar (for Eurobond Investors) of their principals invested.  

According to financial analyst, it is a deadly idea to be conceived in the first place by GoG not to talk of the implementation. One of the renowned analyst warned that, any of such move may result in Ghana not being able to go to the capital markets for many years to come.

“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”, former Executive Director at Standard Chartered Bank, Alex K. Mould has warned in an interview.

“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.”

However, the analyst tabled some alternative ideas on how the ‘Nana Akuffo Addo/Dr Mahmoud Bawumia failed government ‘ could resort to on addressing the glaring default in it’s debts.

Mr Mould enumerated the following options during an 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 that, the NPP Govt 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 question the government needs to address is, if the challenge is a structural one, or if it’s pure mismanagement (where drivers of fundamentals remain strong) as 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?”

This portal promise to bring our readers (Part 2) of the interview which will deal with the challenges government faces with Creditors and the debacle Creditirs holding GoG securities have.

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