News Guide Africa

Tag: Alex Mould

  • Banks to lose up to 60% of their revenue due to Debt Exchange – former Stanchart Director

    A former Executive Director of Standard Chartered Bank has warned the economic contraction implications of the debt exchange programme will be dire.

     

    According to the finance analyst, if the Debt Exchange is carried out in its current form, would result in many banks losing as much as 60% of their revenue, since they depend on government treasury bonds.

     

    “To be blunt, most banks will be making losses when you combine this loss of income with the high default rate on loans to SMEs and corporates”, Mr Alexander Kofi-Mensah Mould emphasized

     

    In a Facebook post, he said the main implication of the proposed DebtExchange would be a general slowdown of the economy and “we will either not grow as anticipated, and, perhaps, even not exceed 2% GDP growth this year.”

     

    He said government will have no other option than to cut down its discretionary expenditure and other non-productive policy programmes.

     

    “We also expect a reduction in the construction of new roads as well as a slowdown in road maintenance, and a lot of non-essential government workers’ salaries being delayed or not paid at all etc ie more expenditure accruals,” he stated.

     

    Read full statement

     

    Gov’t seems not to have thought through this _debt exchange programme_ thoroughly; the economic contraction implications are dire!

     

    There will be a general slowdown of the economy and we will either not grow as anticipated, or, perhaps, even not exceed 2% GDP growth this year.

     

    This will be due to less demand, which means that there will be less production, fewer imports, and fewer services being given to the populace.

     

    Now, what does this mean for government revenue?!?

     

    Since the demand of goods and services will go down, it means people will be paying less taxes. Additionally, due to reduced demand – a result of less discretionary expenses – there be fewer imports and as such there will be less duty and other excise taxes collected at the ports.

     

    So, government revenue will plummet and they may fall short of making the projected revenue in the approved budget.

     

    The DebtExchange, if carried out in its current form, will result in many banks not getting any income from Government Treasury Bonds they hold for almost 1.5 years! In some cases, this forms up to 60% of their revenue and is a huge contributor to their profits! To be blunt most banks will be making losses when you combine this loss of income to the high default rate on loans to SMEs and corporates.

     

    With lower than expected revenue, Government will have no other option than to cut down its expenditure.

     

    The first to go will be *discretionary expenditure* and other non-productive policy programmes.

    .

    We also expect a reduction in the construction of new roads as well as a slowdown in road maintenance, and a lot of non-essential govt workers’ salaries being delayed or not paid at all, i.e more expenditure accruals.

     

    Furthermore, with the statutory payments, like pension contributions, the situation will be worse than it currently is, i.e. gov’t backlog of unpaid pension contributions of gov’t workers.

     

    Gov’t needs to re-visit this _debt exchange program_, and create policies that will bring back confidence in the economy, as well as attract investment to spur on the economy; resulting in more spending and increased savings.

  • Another banking sector cleanup in the offing – Experts alarm

    Another banking sector cleanup in the offing – Experts alarm

    Adnan Adams Mohammed

    Financial industry experts have alarmed of imminent cleanup exercise as the country is witnessed a debt restructuring program.

    This comes as the local economy is yet to recover from the first ever financial sector cleanup exercise initiated in 2019.

    The experts explained that, Debt Exchange Program the debt-ridden country is to undertake will usher Ghanaians into unprecedented hardship likened to the era of 1979-83 hardship in Ghana. A former Executive Director at Standard Chartered has indicated that, the debt restructuring will result in sequence of events that will end with many borrowers defaulting their loans or funds borrowed. This will affect many financial institutions.

    “Many will be borrowing funds which they won’t be paying back (so let us say they will be given grants, but lenders don’t know this yet)”, Alex Mould intuited in an interview last week.

    “He itemised the expected economic situations due to the debt restructuring program as that: in this year, there will be less spending power, little or no savings; companies will borrow less and less production due to less demand (only essentials like food staples); Many businesses will fold and eventually lay off workers; Most contracts will not be honored; and Many rentals will be unoccupied. This will lead to low Gross Domestic Product (GDP) growth.”  

    To this, the Dean of University of Cape Coast School of Business, Prof. John Gatsi warned that the country will experience another round of banking sector cleanup if care is not taken.

    According to the economist, the “Debt exchange program is default announcement and a call for support to resolve debt servicing burden by government.” but was quick to add that “This does not in anyway take away the solemn and legal commitment to pay principal at maturity and also pay periodic coupon to the bond holders.”

    Implicitly, this legal obligation or covenant is such that the debtor (government of Ghana) is still a debtor whether there is cash flow / revenue challenges or not.

    In the financial terms, the fact that government has declared default does not mean government has triggered a different status for itself. Government is still a debtor.

    Prof Gatsi emphasizing on this aspect expunged that, “The Ministry of Finance is not a court to determine that individual bond holders will not get favorable judgment in any legal action especially when the process was described as voluntary.”

    “In a democracy, individuals bond holders are at liberty to go to court. The court has the choice to determine whether or not people should be scared about government and her debt instruments going forward. Government indeed needs the support of bond holders in the debt exchange program but the critical question is whether government should determine what it wants and not a negotiated deal.”

    Consequently, the Economics Professor cum Lawyer juxtaposed that, the debt restructuring will lead to liquidity challenge in the financial sector of the economy.

    “The challenge now is that government debt restructuring in a high interest rate regime, may trigger a certain percentage of default by private sector debtors such as households, micro, small and medium size enterprises . So we await a boom in the non- performing loan portfolio of banks soon with reclassification of assets with huge assets expected for impairment. This will create liquidity and capital challenges. We are in for another round of bank sector cleanup if care is not taken”, he added.

    “The debt exchange must be negotiated fairly for bond holders to accept the difficulties government is facing to share part of the burden with government. If this is not done then the entire process becomes hostile . The exercise should be fair to the financial system in general to foster a negotiated debt exchange program and this will keep bond holders still trusting government. Everything must be done to maintain investor confidence to achieve trustworthy and credit worthiness of government instruments along the long term path.”

    Meanwhile, the Finance Minister, Ken Ofori-Atta has noted in the ‘Invitation to Exchange’ to individual bondholders that, the principals of eligible individual bondholders will not be touched in the debt exchange programme but the interests will get a haircut.

    This invitation is to exchange certain domestic notes and bonds of the Republic of Ghana, E.S.L.A. Plc, and Daakye Trust Plc (collectively, the “Eligible Bonds”) for new bonds of the Republic of Ghana.

    The exchange, the minister noted, will rather involve an exchange for new government of Ghana bonds with a coupon that steps up to rates ranging from 9.15% to 10.65% (depending on the specific series of new bonds) as soon as 2025 and longer average maturity.

    The minister said the domestic debt exchange is part of a more comprehensive programme to restore debt and financial sustainability.

    In the Amended and Restated Exchange Memorandum to individual bondholders, he noted: “The successful completion of this domestic debt exchange is a critical component of both the debt reduction programme and the International Monetary Fund programme discussions; it will contribute to unlocking the support of the international community and will allow Ghana to reach debt targets agreed with the IMF”.

    “We need the full participation of all bondholders in this transaction. Anything less will not make us eligible for assistance. There can be no exception”, he added.

    Apart from that, he said contingency plans have been prepared with applicable regulators to assist certain sectors of the economy (including the financial sector) after its participation in the exchange, to minimise negative spill-overs and safeguard the domestic economy including the establishment of a financial stability fund to provide a backstop for liquidity.

    The minister indicated that, the alternative to the debt exchange would be a far worse economic crisis, with protracted closure from international markets including imported goods and services and further domestic economic instability both for the real economy and the financial sector.

    “It would also mean depleted fiscal resources to support the neediest.”

    “We are acutely aware of the upfront cost of this transaction, and other aspects of our adjustment programme, to participating holders. To that end we are carving out from this exchange treasury bills (up to one-year maturity) typically held by retail investors”, he explained.

    “Further, there is also a positive trade-off for debtholders as a group: this transaction, though resulting in reduced coupon payments from 2023, will make a positive contribution to a safer and brighter future for all Ghanaians”, he argued.

  • Modalities for the Debt Exchange is like ‘studying Thermodynamics’ – fin analyst jest

    Modalities for the Debt Exchange is like ‘studying Thermodynamics’ – fin analyst jest

    Adnan Adams Mohammed

    A finance analyst has said, from the way the finance minister is going about with the Domestic Debt Exchange program, is making the whole structure and procedure confusing.

    The analyst explains that, Ken Ofori-Atta has done two turnarounds in less than a week on the structure and procedure for the debt exchange.   

    After a crunch meeting between government and organised labour, forthnight ago, after the later had threatened a nationwide industrial action if pension funds are not exempted from the exchange program, the finance minister announced that pensioners’ money are individuals’ funds that are managed by Trustees and as such should also be exempt same as an Individual funds invested in government bonds which were already exempted.

    A day later after exempting the pension funds, the Mr Ofori-Atta announced new modalities for the exchange program but now including individual funds invested in government bonds.

    “So now, on what basis are pensioners’ funds invested in government bonds exempt?”, Alex Mould quizzed.

    “I am confused even more than I was yesterday. It is like studying Thermodynamics. The more you learn the less you know!!”

    According to a senior fellow at IMANI Africa, Bright Simmons, the debt program represents, undoubtedly, the largest single transfer of wealth from the Ghanaian private sector to the government in a single fiscal measure, in living memory.

    It is equivalent to doubling taxes on the entire corporate sector and giving the bill to only banks, insurance companies, pension funds and a few other investor categories to pay.

    Due to the Ghana-IMF programme, the government has announced measures to deal with the economic crisis including the debt exchange programme, freezing of public sector employment, and a haircut on all government bonds among others.

  • Gold for Oil policy suffers criticism…described as “zero-sum-game’

    Gold for Oil policy suffers criticism…described as “zero-sum-game’

    Adnan Adams Mohammed

    Government’s touted ‘game changer’ policy, Gold for Oil, intended to stem the exchange rate escalation has been receiving criticism from the energy industry experts as to the viability of the policy.

    The policy, as indicated by government is already receiving attention from global fuel traders and expecting its first consignment in second week of this month, January 2023.

    But the former National Petroleum Authority boss has described the deal as a ‘zero sum game’.

    The energy and finance analyst justified his comment that, from the way Bank of Ghana is redirecting the gold flows from the Small Scale Mining Companies into the banking sector directly, he do not see exports increasing nor imports decreasing and this will add up nothing to the current fuel trade pattern and its effect on the forex reserves.

    “Unless we put some sort of policy to curb under-used imports or increase taxes on non-essential imports”, Alex Mould, who is also a former GNPC Boss and Executive Director with Standard Chartered Bank suggested in an interview last week.

    He explained the ‘zero sum game’ description of the policy as that; “The trader who import products into the market and the main ones who buy gold from the Small Scale Mining Companies (SSMC) (that is, Melcoms and Palaces etc) were using the Cedis obtained from their local sales to buy Gold directly or indirectly and exporting it and obtaining the forex directly and not through the banking system. So the gold exports were going to these traders directly or indirectly and not in the hands of BoG or the Commercial banks.

    So, now that Bank of Ghana is redirecting the gold flows from the small scale mining companies into the banking sector directly through bank of Ghana.

    “The way I see it it’s a Zero-sum game because i do not see the exports going to increase nor do I see  imports decreasing unless we put some sort of policy to curb underused imports or increase taxes on non-essential imports.”

    “What we have told BoG  to do was to allocate some foreign exchange from our exports of gold, timber and oil which passes through Bank of Ghana and some of the commercial banks directly to the essential imports of the country, which include petroleum products building materials for industries and medical equipment and consumables as well as education consumables.

    “BoG never did that fully, although some partially done in the 2010-2016 era.

    The government had been working on the new policy to buy oil products with gold rather than US dollar reserves for the past few weeks. The move, announced earlier by Dr Bawumia, was meant to tackle dwindling foreign currency reserves coupled with demand for dollars by oil importers, which is weakening the local cedi and increasing living costs.

    Ghana’s Gross International Reserves stood at around US$6.6bn at the end of September 2022, equating to less than three months of imports cover. That is down from around US$9.7bn at the end of last year, according to BoG.

    If implemented as planned for the first quarter of 2023, the new policy “will fundamentally change our balance of payments and significantly reduce the persistent depreciation of our currency”, Dr Bawumia said a few weeks ago.

    Using gold would prevent the exchange rate from directly impacting on fuel or utility prices as domestic sellers would no longer need foreign exchange to import oil products, he explained.

    “The barter of gold for oil represents a major structural change,” he added.

    While countries sometimes trade oil for other goods or commodities, such deals typically involve an oil-producing nation receiving non-oil goods rather than the opposite. Ghana produces crude oil, but it has relied on imports for refined oil products since its only refinery was shut down after an explosion in 2017.

    Meanwhile, the Executive Director of African Center for Energy Policy (ACEP) is worried that, the policy might hand over control of gold and oil to politicians.

    “The structure presented as gold-for-oil only seeks to hand control of the gold and oil value chain to politicians. No other value can be deduced. It is obvious that if cheap oil comes to Ghana, other unknown factors will be responsible and not gold”, Benjamin Boakye indicated in a statement issued last week. “The government has still not been forthright about the cost of the structure to justify its competitiveness to the current private sector-led approach.”

    Mr Boakye also said the government agencies involved in the policy, the Bulk Oil Storage and Transportation (BOST), Tema Oil Refinery (TOR) and the Precious Minerals Marketing Company (PMMC), are historically poor performers in oil and gold-trading.

    In his view, “interventions of this magnitude should not leave people in doubt in the interest of good governance and assurance of the international community which has shown significant interest in Ghana’s gold for oil programme.”

    “The government also needs to be cautious and guided by the challenging context of state agencies in the oil and gold business because when these agencies make losses, it is the public that pays, and the energy sector is already inundated with debts because of similar trading abuses. There are no guarantees in the current structure that insulates the public from debt.”

  • Cheap Fuel: BDCs need special forex access arrangement – Analysts

    Cheap Fuel: BDCs need special forex access arrangement – Analysts

    Adnan Adams Mohammed

    A former Chief Executive  Officer (CEO) of both downstream and upstream petroluem sector of Ghana has added his vice to the call that government address the structural challenge on how importers, Bulk Oil Distribution Companies (BDCs) acquire foreign currencies for their business.

    Alexander K. Mould believes the structural problem of making forex available can be addressed by  streamlining the process by BoG working with NPA to make foreign currency available to the commercial Banks of the BDCs;

    The call by the former CEO of National Petroleum Authority (NPA) and Ghana National Petroleum Corporation (GNPC) was a followup to concerns raised by an Energy Policy Analyst  that the foreign exchange rates used by BDCs and OMCs in determining fuel prices are too high. According to the Analyst, the oil companies used a forex rate of between GHC18 and GHS19 to the dollar in setting the prices in this current price window

    “The forex rate they are using is too high ……if they use that forex rate to set prices within two weeks and the cedi depreciates the BDCs will be affected not government,” Benjamin Nsiah said in an interview.

    However, Mr Mould has noted that, the long credit period –another structural problem in the industry –  is basically to accommodate the challenges in sourcing forex.

    In a galloping inflation and galloping exchange rate regime, you can’t wait long to pay back what is owed as the exposure is marked-to- market.

    “Availability of forex is the biggest challenge facing the BDCs.”

    Me Mould, who is a former corporate banker and a former  Executive Director of Standard Chartered Bank, has called on the BDCs and OMCs to better manage their forex trade aspect of their business and suggested some possible ways they could do that.

    “Managing the forex exposure is the key risk they face and as such they should be better manager this risk by buying dollars as soon as they sell the fuel, at least on a weekly basis, and not wait till when the Letter of Credit, or suppliers, credit is dues.

    “The BDCs should also move away from given OMCs more than 7 days credit.”

    “The forex price is unpredictable due to the speculation caused by the short supply and lack of any assurance from BoG of future forex flows;  If BoG make any allocation, the allocation willl first go to GOIL then  to others.”

    Consequently, Mr Nsiah urged the government to work with the BDCs to reach an agreement and sign a Memorandum to reduce the forex rates.

    He added that if the BDCs fail to comply, government can elevate Bulk Oil Storage and Transportation Company Limited (BOST) to compete with the BDCs. He added that BOST should be made “to import products into this country and sell it on the market.”

    “That 60 million dollars given to BDCs to set the prices, if the government handed it to BOST for instance to import the products, it would help all of us,” he said.

    On Tuesday, petrol and diesel prices were sold for an average of ¢18 and ¢23 per litre, from the previous prices of ¢15 and ¢19 per litre respectively.

    Presently, the price of crude oil on the world market is relatively stable, selling at $90 per barrel;

    Meanwhile, in relieving the Ghanaian from the fuel hikes, Information Minister, Kojo Oppong Nkrumah disclosed that the government  is sourcing cheap and affordable petroleum products for supply into the Ghanaian market.

    According to him, the National Petroleum Authority (NPA) and the Ministry of Energy will provide further details about the importation of fuel onto the Ghanaian market in the coming days.

    He noted that the Energy Ministry had already begun talks with some major sources and sovereigns in the supply of petroleum products.

    “In President Kufuor’s time, we did it with Nigeria, Sahara lifting for us and you could have supply credit lines and a fixed price that you could bank on and it is a very similar arrangement that has already commenced and I am expecting that in the coming weeks the NPA, the Energy Ministry will have the opportunity to provide the details,” he said.

  • Eurobonds and treasuries investors jittery over possible ‘haircut’

    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.

  • Mould hints of fuel shortage as forex crunch hit banks

    Mould hints of fuel shortage as forex crunch hit banks

    Adnan Adams Mohammed

    A former Chief Executive Officer of National Petroleum Authority (NPA) has hinted of fuel shortage in the country if government do not intervene in providing foreign excharge to the banking sector immediately.

    The energy and finance consultant indicates that, banks are not providing sufficient foreign currency needed to meet the payment of their maturing Letter of Credits (LCs) issued to international fuel traders.

    The banks are crying out that the Bank of Ghana is not able to provide enough foreign currencies (especially the U.S dollar), through its forex auctions, to meet their trading partners needs.

    “This is causing BDC‘s to max out on their credit-line limits with their banks, and the implication is that the banks will no longer be able to finance fuel imports by October”, Alex Mould said in an interview.

    The, current situation, if not addressed, could prove disastrous for the country as this could trigger a domino effect and  even imports of essential commodities could come to a grinding halt.

    As it stands, not only fuel shortage is imminent, but food items such as rice, sugar, protein food (fish, meats) and bakery products; “it could be a bleak Christmas this year”, he added;

    To salvage the situation, Mr Mould proffered that, “Government needs to act decisively and quickly before International Banks’ Credit and Country Risk teams start reviewing downwards their Country-limits to Ghana, if they have not already done so since S&Ps recent downgrade – the last of the three major rating agencies that have down graded Ghana this year.

    Such actions by the local bank’s International partners will cause a FX credit crunch resulting in defaults by Ghanaian importers to their suppliers. This would only trigger a scramble for the scare foreign exchange which could send the cedi spiraling in a free falli!

    “GoG only choice is to accelerate their discussions with IMF to enter into an immediate Bridge-program whilst working on the main Take-Out Program ,which sources suggest will kick in sometime in first quarter of 2023.”

  • News Guide’s Q&A with Alex Mould on IMF program

    News Guide’s Q&A with Alex Mould on IMF program

    News Guide Africa’s Adnan Adams Mohammed, engaged a renowned finance and energy expert, Alex Mould, in a question and answer session on Ghana’s economy and the engagement with the  International Monetary Fund (IMF) for a relief.

    This was to help our readers grasp with what the picture of the economy looks and what IMF program can bring to better the outlook of the economy.

    Below is the full Q&A:

    ET: Q1i. What does going to the  IMF actually mean?

    1ii. What do we gain by returning to IMF?

    1iii. Does IMF “bail” a country out?  What exactly does that mean ?

    1v. What is the alternative if we do not go into an IMF Programme  ??

    Alex Mould: By going to IMF the managers of the economy can become disciplined and reduce the expenditure especially the discretionary expenditures are focused on the Manifesto policies that do not increase the Gross Domestic Product (GDP).

    IMF will ensure discipline and that’s bringing credibility back. So yes, If a country is disciplined then no need for IMF

    IMF don’t lend much but act as credit “derivative “ where’s bilateral and other multi-laterals are under the “IMF umbrella”and seek such comfort to “assist” either by extension of tenor, Grace period on interest payments , and sometimes haircuts (though rare) and sometimes additional funds

    The only way out for them are as follows; Refinance principal that is amortized.

    Issue here is capital markets are “closed to Ghana. Our bonds are trading at 70% of their Par value (100%), yield is now 12.5%.

    If Ghana goes to capital markets today the interests rate will be 12.5%. So they won’t go (or can’t go).

    ET: Q2i. Can’t Ghana manage its own affairs out of this situation on its own without going to the IMF?

    2ii. Can’t Ghana raise anymore debt on its own without going to the IMF?

    2iii. Does IMF impose any conditionalities?

    2iv. How are these conditionalities arrived at?

    2v. Is Ghana as a going concern bankrupt or going into an ICU?

    Alex Mould:

    TOP 20 LIST OF THE MOST INDEBTED NATIONS IN THE WORLD.

    1. USA ($18,286 trillion)

    2. UK ($7,499 trillion)

    3. France ($5,250 trillion)

    4. Germany ($5,084 trillion)

    5. Netherland ($4,124 trillion)

    6. Luxembourg ($3,900 trillion)

    7. Japan ($3,408 trillion)

    8. Italy ($2,285 trillion)

    9. Ireland ($2,236 trillion)

    10. Spain ($2,036 trillion)

    11. Canada ($1,791 trillion)

    12. Switzerland ($1,699 trillion)

    13. Australia ($1,563 trillion)

    14. China ($1,437 trillion)

    15. China Hong Kong ($1,416 trillion)

    16. Singapore ($1,300 trillion)

    17. Belgium (($1,194 trillion)

    18. Sweden ($938 billion)

    19. Austria ($629 billion)

    20. Norway ($623 billion)

    TOP 10 MOST INDEBTED AFRICAN NATIONS TO CHINA, IMF AND WORLD BANK.

    1. Angola ($25 billion)

    2. Ethiopia ($13.5 billion)

    3. Kenya ($7.9 billion)

    4. Republic of Congo ($7.5 billion)

    5. Sudan ($6.4 billion)

    6. Zambia ($6.5 billion)

    7. Cameroon ($5.5 billion)

    8. Nigeria ($4.8 billion)

    9. Ghana ($3.5 billion)

    10. DR. Congo ($3.4 billion)

    SOURCE: World Bank Annual Report for 2021.

    From the data above we can deduce that, the issue is not about the quantum of a country’s debt.

    It’s about the quantum of debt relative to your earnings from taxes and even more specific is the sustainability of your payments of your debt service from your unencumbered revenue without going to borrow again to pay for paying your debt service.

    The fear they have of going to IMF is that, IMF will only go into agreement with Ghana government on a program of discipline. Note this, IMF never imposed anything on a government.

    The government provides their plan, a Performance Improvement Plan (PIP), which the IMF agree. The IMF only monitors that they follow their own plan.

    ET: Q3i. Why are we in the position we find ourselves since we just came out of an IMF Programme?

    3ii. What were we supposed to do?

    3iii. What did we do wrong after coming out of the last programme to send us back to the IMF again?

    Alex Mould: Issue here is that, capital markets are “closed to Ghana. Our bonds are trading at 70% of their Par value (100%), yield is now 12.5%. If Ghana goes to capital markets today the interests rate will be 12.5%. So they won’t go (or can’t go).

    Ghana could not manage its expenditure very well and generating much less revenues. This forced the government to resort to borrowing incessantly. So, the fiscal deficit and debt accumulation kept widening.

    Ghana’s current outlook on the debt market is not positive. The Market never lies. Our debt price has dropped 30%. Why is Capital markets saying so? Are they wrong?

    The price dropped far before Fitch released the bomb. The market players (investors) always knows before the rating agencies report their findings. Rating agencies only report numbers already known to the market.

    Why is it that Nigeria and Ivory Coasts – our immediate peers- Bond prices are close to par (100%).

    First of all  let’s get the numbers right. GDP is not government income; it is total income in the country.

    Government income is about 12-16% of GDP. 2022 Domestic Tax income is going to be about GHS74 billion.

    Total debt is GHS350 billion (approx) and goes up even if they don’t do anything because 50% of it is in US Dollars and when the Cedi depreciates our debt gets bigger. The debt service is principal and interest

    Interest debt service is GHS37.5 billion and Wages and compensation is GHS36 billion. These two expenditures are greater than our Domestic tax revenue.  

    Principal repayment this 2022 is about US$8 billion but in 2025 will be over US$22 billion. That is when the problem will arise if we can not get into the capital markets to refinance and get the bilateral and multi-laterals to support us.

  • Finance experts support gov’t decision to engage IMF

    Finance experts support gov’t decision to engage IMF

    Adnan Adams Mohammed

    Some finance experts have indicated the need for government to engage the International Monetary Fund at this moment of the country’s economic conditions.

    They believe the continuous depletion of the country’s reserves as a major concern that requires urgent support from the Fund to enable the country secure concessionary loans at cheaper rates as well as the low domestic revenue mobilization entangled with rising global and local inflation due to the uncontrollable fuel and food price hikes.

    Although, the government had in the past indicated its fear for the Fund’s fiscal disciplinary measures (expenditure restrictions), an Associate Professor of Finance at Andrews University in the United States has dismissed such misconception explaining that, the Fund does not impose restrictions on member countries, but rather helps with structural changes which may not affect government policies.

    “IMF does not impose restrictions. What they focus on is structural changes and in that, some may affect government policies”,  Dr. Williams Kwasi Peprah has said in an interview, last week, for his reaction on government’s decision to go to the IMF.

    Also, in an interview with a former finance, banking and energy industry expert, Alex Mould, who was also the former Executive Director at Standard Chartered Bank and CEO of Ghana National Petroleum Corporation (GNPC), for his take on the ramification for going to the IMF said, it will restore discipline in the fiscal system which will intend restructure the economy for better outlook in the bond market.

    “IMF will ensure discipline and that will bringing credibility back. They (government) can become disciplined and reduce the expenditure especially the discretionary expenditures are focused on the Manifesto policies that do not increase the Gross Domestic Product.”

    He indicated that, IMF do not lend much but act as credit “derivative” where’s bilateral and other multi-laterals are under the “IMF umbrella” and seek such comfort to “assist” either by extension of tenor, grace period on interest payments, and sometimes haircuts (though rare) and additional funds.

    Dr. Peprah,further expatiated that, going to IMF will help the country’s exchange rate to stabilise, trading with ease with the rest of the world.

    “Normally, the IMF’s main aim is to ensure that international trade does not go into challenges. If you notice, the other side of the world is into manufacturing and they sell their goods in Africa. So Africa must have the money to pay for them. That’s why they asked governments to keep all the reserves so that they will be able to pay their bills [foreign] when they are due.”

    “The second point is that the Fund facilitates international trade. So that is the reason why they provide lending to governments when they see that an impact on a country’s position will affect the other parts of the world. They do that to ensure that every country’s balance of payments is ok”, he explained.

    “You will see another point when they are talking of balance of payments so that the international trade will not be distorted”, he added.

  • IMF Program: Mould answers FAQ as gov’t starts formal engagements

    IMF Program: Mould answers FAQ as gov’t starts formal engagements

    Adnan Adams Mohammed

    After months of rejecting proposals, the government has finally accepted to engage the International Monetary Fund (IMF) for a relief program.

    President Akufo-Addo, last week, ordered the Minister for Finance, to commence formal engagements with the Fund after a telephone conversation with the president and the IMF managing director, Kristalina Georgiev.

    Earlier this year, Ken Ofori-Atta, who has been hesitant about going to the IMF for a relief program, indicated that, going to the IMF again will have dire economic implications. But, in an interview with a finance, banking and energy industry expert, for his take on the knottiness for going to the IMF, said, it will restore discipline in the fiscal system which will intend restructure the economy for better outlook in the bond market.

    “IMF will ensure discipline and that will bringing credibility back”, Alex Mould, former Executive Director at Standard Chartered Bank and CEO of Ghana National Petroleum Corporation (GNPC) in a question and answer session with Economy Times. “They can become disciplined and reduce the expenditure, especially, the discretionary expenditures which are focused on the manifesto policies that do not increase the Gross Domestic Product.”

    A statement signed by the Information Minister, Kojo Oppong Nkrumah, announcing government’s readiness to engage the IMF said, government is looking for balance of payment support.

    “The engagement with the IMF will seek to provide balance of payment support as part of a broader effort to quicken Ghana’s build back in the face of challenges induced by the COVID-19 pandemic and, recently, the Russia-Ukraine crises.”

    For past months, domestic revenue mobilization was not performing to budgetary expectations, coupled with the inability to raise money from the international capital market due to the downgrade of the economy by credit rating agencies, some experts have suggested to the government to seek the support of the International Monetary Fund (IMF).

    Meanwhile, Mr Mould has ‘slapped Ghanaians in the face’ for our lack of reading attitude as many keep asking him for answers on what IMF programs is all about although he had issued answers to some Frequently Asked Questions (FAQ) some five months ago in February this year.

    “I wrote a paper in February 2022 (just 5 months ago) explaining this. No one reads – that’s the problem. Everyone thinks it’s normal NPP bashing.”

    Below are Alex Mould’s answers to IMF ProgramFAQ:

    1.  So how much is the govt looking to get from the IMF?

    It’s not the quantum of money that The IMF will give Ghana.

    It’s more serious than that !!

    It’s what The IMF bring to the table – Credibility

    IMF is a credit enhancer – Acts as credit derivative at low cost

    Ghana is basically filing for bankruptcy

    It’s like Chapter 11 – a reorganization of debt with a performance improvement plan (PIP) managed by a trustee

    IMF is the Trustee

    So, basically (a useless word), Ghana needs to reschedule its debts – mainly with the multi and bi-lateral Creditors (other Govt controlled financial institutions)  that lend us money – and also be given new debt (fresh liquidity) by these same institutions to balance our budget (especially the essential expenditure lien wages and arrears on projects already started) since our revenue (mainly from Taxes) are not enough to cover the ff:

    – our wages (of Govt workers mainly civil and public servants , Parliament, Office of the President, judiciary, teaches , nurses/doctors etc etc);

    – our debt service (mainly interest payments , and some principal repayments)

    – our Arrears of projects and programmers started (free SHS, Roads, Energy subsidies (mainly to Power generators; and subsidies paid to underperforming SoEs that are not profitable – TOR, and many others)

    – new programs approved in the budget; (some of which are unnecessary and

    So, we have a credit crunch and a liquidity crunch.

    Our domestic Borrowing ranges between 20-26% from 12-19%

    The short term rate (relative to the 7-10Yr rates) have jacked up exponentially indicating more or a liquidity crunch for Govt

    No institution or country  is going to reschedule  Ghana’s  debt if they don’t have credibility; they have shown ineptitude and lost all credibility and by going directly to capital markets in the past, to borrow heavily, they avoided the clutches of astute lenders – the multi and bi- lateral creditirs – who would demand good financial management and best practice in good governance

    These Capital market debt is held by institutional investors who only worry about the price of these bonds and just make their money on trading the bonds ie selling and buying these bonds (and that by the ways is Ken Ofori Atta’s strength – not managing an economy)

    Hence we had to go to the IMF!!!

    2. Is it anywhere near what they have borrowed so far?

    The IMF itself does not lend that much

    What the IMF brings to the table is credibility and allows other creditors lend more to Ghana by giving  them the comfort that *someone* is watching these “maverick” managers of Ghana’s economy

    What the IMF basically is telling all the other lenders is that they (IMF) will institute measures via a performance improvement plan to put a stop to bad management so that the managers of our economy do not revert to their bad management practices which got them into this  mess i.e they will watch the Govt so that they do not mess up again

    So, IMF will put Ghana on a “program”and will have a performance improvement plan (PIP) which will detail how they’re going to bring back stability to the economy; reduce inflation; stop the run on the Cedi; and manage the economy properly basically- by focusing on what really matters i.e creating real jobs and letting majority of the people have an income that can meet their needs; as well as providing the social net for the vulnerable;

    Ghana needs to improve its credibility among its lenders  (and credit Rating issued by Moody’s, S&P and Fitch) ) and that’s why Ghana is going to the IMF; it’s like going to the park with your mother – she won’t let you do stupid things!!