Revise modalities for Debt Exchange Programme - Economist to government

An economist, Prof Lord Mensah has called on the managers of the economy to revise the modalities of the entire exercise of Domestic Debt Exchange Programme (DDEP).

Prof Mensah also an Honorary Fellow at Solidaire Ghana believes that, since the bank and non-bank sector stability plays a major role in a non-market economy like Ghana, the government is advised to stress-test all these sectors before any debt exchange program.

The economist explained that, the stress test will provide information on how to design the needed support for the sector. Indicating further that, the financial stability support fund provided in the first and the revised DDEP is not enough, some of the institutions may need recapitalization, liquidity support, and in large regulatory measures.

“The government’s posture in the Domestic Debt Exchange Programme (DDEP) exercise seems not to be serious”, Professor Lord Mensah, a lecturer at the University of Ghana Business School indicated in his expectations for 2023. “The entire exercise can pose a unique challenge, dragging the IMF Board approval and external debt restructuring into the last quarter of 2023 to the first quarter of 2024.”

Prof Mensah stressed that, “There seems to be no appreciation of the consequence of the entire DDEP on the domestic financial sector.”

Consequently, he provided education on the effect between the DDEP and the financial sector. “The government should note that Banks and the Non-Bank (including pensions, rural banks, and insurance companies) sectors hold more than 84% of the domestic debt, and as a result, careless execution of the DDEP may spread the country’s debt distress to other parts of the economy, with likely effects on the financial stability and economic activity.

“The structure of the DDEP will play a major role in achieving the necessary fiscal space whiles minimizing the risk to the domestic financial system and the broader economy. The government must sacrifice and cast its net wide to ensure borrower-creditor participation in the DDEP by lowering the relief it is seeking from the creditors.”

Meanwhile, moving from the above analysis on the DDEP, the economist expects the “macroeconomic indicators like the exchange rate (Cedis to the Dollar) and inflation to see some stability compared to last year, due to the fall in global oil prices and other policies.

“The fall in global oil prices, the suspension of external debt payments by the government, and the possible IMF extended credit facility will have the potential to control the exchange rate.

“The control of the exchange rate will build up into a reduction in inflation since the greater part of the Ghanaian inflation is imported.”