Debt Exchange: Financial Stability Fund to be established with target size of GH¢15bn

The government of Ghana is in process of establishing the Ghana Financial Stability Fund with a target size of GH¢15 billion which will be provided by the state and its development partners.

The purpose of the Fund is aimed at providing liquidity support to financial institutions that participate fully in government’s Debt Exchange programme.

A statement issued by the Financial Stability Council on December 7, 2022 explained that “all financial institutions (banks, SDIs, pension schemes, collective investment schemes, fund managers, broker/dealers, insurance firms) that fully participate in the Debt Exchange can access the GFSF for augmented liquidity support, with effect from the date of completion of the Debt Exchange”

It added that the Fund will be managed by the Bank of Ghana under unique operational guidelines being developed by the Financial Stability Council.

The statement further said the Financial Stability Council will provide ongoing advice and oversight for the use of the GFSF under the Debt Exchange programme.

Meanwhile, the Council said Stress Tests have been conducted by the relevant financial sector regulators to estimate the potential impact of the Debt Exchange for banks, specialised deposit-taking institutions (SDIs), insurance firms, asset managers, collective investment schemes, pension fund trustees, and regulated pension schemes.

But to mitigate financial stability risks from the debt operation on the financial sector, the Council said regulators are poised to deploy all regulatory and supervisory tools.

“Regulators will assess impacts on a regular basis, and quickly address evolving risks in order to safeguard financial stability," it noted.

To also support and encourage full participation of financial institutions in the voluntary debt exchange programme, the Council said; “Financial sector regulators will temporarily reduce regulatory capital and liquidity requirements for regulated firms and schemes that voluntarily participate in the debt operation.

“Regulators will also suspend or delay any new rules that will have an adverse impact on liquidity or solvency. Each regulator will communicate more specific reliefs to its regulated firms/schemes in due course,” the statement added.

The government on December 5, 2022 made an invitation to “holders of domestic debt to voluntarily exchange approximately GH¢137 billion of the domestic notes and bonds of the Republic, including E.S.L.A. and Daakye bonds, for a package of New Bonds to be issued by the Republic.”

The new agreement among other things, will replace existing local-currency debt with four new bonds maturing in 2027, 2029, 2032 and 2037; Finance Minister Ken Ofori-Atta said.

This has seen government entreat local bondholders to accept losses on interest payments set at 0% in 2023, 5% in 2024 and 10% from 2025.

The move has been regarded as a clear admission of probable default on its bonds.

MA/FNOQ