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Domestic Debt Exchange Programme: Pension funds next? It is off the table — Ofori-Atta


 Ghana’s Finance Minister, Ken Ofori-Atta, was coy with his answers when asked the simple question as to what exactly was his plea to labour unions to help the government seal a US$3-billion bailout from the International Monetary Fund (IMF) last Sunday.

At a press briefing in Washington, DC, to wrap up the week-long IMF/World Bank Spring Meetings, Ofori-Atta had called on organised labour and Ghanaians in general to help the government shoulder the burden of economic revitalisation.

Earlier reports last week had pointed to a possible revisit of the exemptions offered pension funds from the Domestic Debt Exchange Programme (DDEP). However, Ofori-Atta was swift to dismiss the reports.

Following labour agitation, pension funds were exempt from the programme.

Taking a leaf from the books of the IMF Managing Director, Kristilana Georgieva’s earlier call on bilateral and multilateral creditors of Ghana to help Ghana manage its debt crises, Ofori-Atta also made his own plea to labour unions in Ghana to help the government achieve a sustainable debt threshold.

Details on his plea to labour remain sketchy, as that is a very sensitive matter.

He said as global leaders made strong moves for the country to secure its US$3 billion support from the IMF swiftly, domestic stakeholders, such as labour unions, needed to act positively in the wider interest of the economy.

Consequently, he said, he was optimistic that labour and all interested stakeholders would come together to help address the debt sustainability challenges.  

Leaked Memo

Pension funds, which are largely managed by fund managers on behalf of organised labour, were exempted from the DDEP that saw investors taking on losses.

However, a memorandum of understanding (MoU) that was signed with the fund managers required them to help the government bring the debt to sustainable levels.

In a leaked letter authored by Ofori-Atta to the trustees of the funds, the Finance Ministry sought to invoke the MoU when he requested the trustees to accept new terms meant to help address the government’s financial needs while maintaining the value of the pension funds.

The proposed offer entails exchanging your current holdings of treasury bonds, ESLA bonds and Daakye Bonds for a menu of the currently outstanding new bonds (issued in February 2023 and maturing in 2027 and 2028, respectively,” the letter, which also promised to settled the new bonds in April, said.

At his closing press conference at the Spring Meetings, Ofori-Atta said that proposal to the trustees must be seen in the context of burden sharing.

He noted that there was the need to acknowledge that the country was facing an economic crisis that required all hands on deck to address.

The challenge for us, as a nation, is the acknowledgement that we do have an economic crisis, and that everybody at some point in time has to put his or her shoulders to the wheel,” he said.

Goodwill

The Finance Minister said the country was fortunate to have garnered monumental goodwill from global leaders on the economy and finance for its push for an economic turnaround, and that now it required key local partners, such as employees and the private sector, to play their part in crystalising the sentiments into concrete gains.

We need to look at it from the context of burden sharing and where we want the country to get to, and that becomes incumbent on everyone to support,” he said. 

“If you look at the labour discussion, we specifically also talked about examining mutually beneficiary options within the debt sustainability limit – getting down to 55 per cent of debt-to-gross domestic product (GDP) ratio and 18 per cent revenue-to-GDP ratio.

That is the spirit with which we are moving,” he said when asked to explain how the ministry wanted labour to help bring the debt to sustainable levels. 

We did a difficult DDEP and we are working with the Paris Club, which will result in some accommodation. We will work with the Eurobond investors – our private lenders – as you call them, which will also result in some accommodation.

“My expectation is that as we look at building a stronger society in which everybody will benefit, we all need to move to the position that enlightens self interest and dictates the survivability of our society for all of us,” the minister added. 

Optimistic 

He expressed optimism that labour would support the government to fashion out the right policy to address the teething debt problem to enable the country reach the needed sustainability threshold quickly for growth to return.

He described the mood from the Spring Meetings as  “overwhelming”, noting that there had been tremendous show of support from the World Bank, the IMF and the country’s bilateral partners for the push for a swift fund-assisted programme. 

From all indications, we expect financing assurances to come in weeks. The indication from the fund is that given the kind of work we have done, once those assurances come in, it will facilitate and move very quickly for the approval to be given,” he said.

Cocoa and dollar bonds haircut

Denying the earlier report, the Finance Minister said the government had concluded and closed that chapter after exempting pension funds from the DDEP that saw more than GH¢83 billion of relatively short-dated and costly debts swapped for low-cost, long-term bonds.

Instead, Mr Ofori-Atta said, local dollar bonds and cocoa bills would be worked on, adding that it was part of the comprehensive debt restructuring process needed to bring the public debt to sustainable levels.

A presentation the minister made to investors in Washington, DC, showed that the local dollar bonds and cocoa bills summed up to GH¢15 billion. 

The hint at working on local dollar bonds and cocoa bills was in response to media reports that a second round of the DDEP was near, with pension funds being the target.

In line with the February 22 memorandum of understanding (MoU) with labour, pension funds were exempted, and that has not changed. So it is not true that we are planning a second round of DDEP," he said.

"You know that we still have cocoa bills and the domestic dollar bonds that we are still working with," Mr Ofori-Atta said.

Earlier, he had told investors as part of the meetings that the DDEP had ended and now it was their turn to burden share in Ghana's quest to secure a $3-billion bailout from the IMF.

He said the commercial lenders understood that position and were now waiting on relevant documentations from Ghana to be able to provide their proposal on how the process should move forward.

The country owed about ¢14.5 billion to commercial lenders, including Eurobond holders and the 2030 World Bank partially guaranteed bond, Ofori-Atta said at the investor engagement.

China 

On China, he said earlier he was optimistic that that country would grant its financial assurances "in weeks" to enable the government to move forward with its bailout request.

China, which holds $1.9 billion of Ghana's $5.5 billion bilateral debt, has been seen as a potential source of delay to the granting of financial assurances to the country, which is the only outstanding pre-condition to the final approval of the request by the Executive Board of the IMF.

Ofori-Atta said China had been more cooperative, with evidence showing that it would soon endorse the process.

He said the Asian giant had been attending all the meetings of the Paris Club and was now close to offering its financial assurance to the club to be forwarded to the IMF.

They have joined all of the Paris Club meetings and we really expect them to offer these assurances to the Paris Club, so that they will then forward them to the fund,” he said.

The assurances are a mix of debt cancellation, restructuring and commitment of further strategic lending, mainly to support productive sectors of the economy and investments that can lift the poor and vulnerable from the poverty line.

According to the minister, China had been very clear that Ghana was facing short-term problems and was confident in the long-term prospects of the economy. 

That, he said, had informed China’s decision to offer the needed assurance to enable Ghana to get the approval for its request.

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