Restructuring Ghana’s Debt: 94% of Tier 2 pension may be affected

About 94% representing (about ¢3.7bn) of the ¢3.9 billion Tier 2 pension contributions placed in government securities may be affected by a probable Debt Restructuring Programme.

A debt restructuring will mean the yield-to-maturity of government bonds and bills will be extended or better still the ‘haircut’ policy enforced. This will potentially affect the return on investments for some investors.

In financial markets, a haircut refers to a reduction applied to the value of an asset. For example, if an asset – such as holdings of a particular government bond – is worth ¢1 million but is given a haircut of 20%, it means it is treated as though it has a value of only ¢800,000.

Joy Business understands that the government will make a decision soon on how to restructure the country’s debt after the completion of a Debt Sustainability Analysis (DSA) by the International Monetary Fund.

Should this happen, the maturing periods of these securities will be affected.

Almost the entire pension funds of Tier 2 contributors have been invested in the Government of Ghana instruments, particularly bonds. This is because government securities are classified essentially as risk-free.

However, the current fiscal challenges facing the economy, particularly ballooning debt and unsustainable interest payments raise some concerns.

The government yesterday announced a 5-Member Consultative Committee chaired by astute banker, Albert Essien, to lead discussions with the financial services industry and other stakeholders to provide industry-wide inputs and transmit industry concerns on debt management strategy to the Ministry of Finance and the Bank of Ghana.

The group will also examine views from financial sector players to deal with issues in the sector before reaching a deal with the IMF for an economic programme.

Joy Business is learning that the group is different from the credit committee that will also engage the Fund.