Aborting Domestic Debt Exchange Programme could be positive turning point for Ghana

It is beyond doubt at this point that the Ghana government’s efforts through the Ministry of Finance to convince holders of government bonds to buy into the Domestic Debt Exchange Programme (DDEP) has run into challenges and the earlier these are addressed, the better for everyone. The purpose of this article is to suggest an alternative approach the government can adopt to address Ghana’s debt problems, turn this year’s outlook from uncertainties and panic into confidence and optimism, and chart a new path to development and prosperity.

The Domestic Debt Exchange Programme as currently designed can plunge this nation into serious crises. No African country has ever done domestic debt restructuring yet. That aside, none of the countries beset by acute debt challenges in recent memory such as Sri Lanka, Jamaica and Greece adopted such grim measures in resolving them as are being proposed in the Ghana case. Sri Lanka didn’t touch domestic debts at all, only foreign debts were affected by the debt exchange programme. Jamaica reduced interest rate from 17 percent to 12 percent. Greece, being a member of the European Monetary Union with most of their creditors being EU members, were also handled differently. Indeed the European Central Bank (ECB) bailed out Greece because the Central Bank of Greece had handed over their sovereignty to the ECB. In all these cases, the Central Banks played significant roles in the domestic debt exchange programmes. Needless to say, Ghana’s DDE as currently structured risks undermining confidence in the economy that could take a long time to rebuild.

The power of Central Banks

The world over, central banks have significant power but operate in the shadows to stimulate economic, political and social change. A central bank can withdraw money from the economy by selling its assets just as it can inject money into the economy by buying up assets. We should have a debate in Ghana on how the Bank of Ghana can utilise credit creation for moderating financial stability and cementing economic prosperity. A number of approaches have been proposed in the Ghana national development plans prepared in 2018. It is common knowledge in developmental finance circles that at a point in time the central bank of Japan, i.e. The Bank of Japan was wealthier than the country Japan, by virtue of the Bank owning huge stakes of Japanese assets and equities. Its balance sheet was larger than the Gross Domestic Product (GDP) of Japan. We must build Ghana in a similar manner to how Japan and the other Asian countries built their countries. Why do we think we are in our current predicament where we don’t have $3 billion when the Bank of Ghana spent $5 billion to clean up the financial sector between 2017 and 2019? The Bank of Ghana is the lender of last resort because it is capable of lending and protecting depositors funds in periods when no other lender is either capable of lending or willing to lend in sufficient volume to prevent or end a financial panic.

Given the severity of Ghana’s current economic challenges, the last thing we need is a loss of confidence in the economy. Confidence in our own economy is what this country needs at the moment. No amount of IMF support can purchase this confidence. That is why we must do everything in our power to build and maintain confidence, trust, and optimism which can be delivered within a short time with or without an IMF deal, if we put our minds to it. I believe the Government can leave the domestic debt alone. Less than 10 percent is normally cashed out of these investments in any given year anyway, the remainder being rolled over. So, unless there is crisis in the economy, these investments can remain rolled over in perpetuity, so long as confidence is maintained. The debts per se aren’t the problem. Government is a continuum and Ghana isn’t going anywhere. What we need to do is to learn from our mistakes and put measures in place to create wealth to repay our debts.

Job losses and challenges of the Debt Exchange Programme

Nothing can compare to the jobs the economy will lose if the Domestic Debt Exchange programme is implemented. For example, if the DDE is adopted and insurance companies earn only 5 percent coupons this year and 9 percent in the next 14 years, how do they pay claims in such a high inflationary environment? They’ve collected premiums and invested same, borne the risks and are expected to pay the sums assured when due. Their entire business models are based on the guarantee of government’s commitment to pay coupons. How do they maintain their staff if they are denied these coupons? Personnel will have to be cut loose, and businesses may shrink or close down. Government will lose personal income tax revenues, besides losses in corporate income tax. Government will ultimately lose other income besides tax revenues. With this arrangement, Ghana’s insurance penetration, which is currently at a low 2 percent, and lower than our peers, will further deteriorate. Only the strongest companies (likely local subsidiaries of foreign companies) will survive. In the long run, everyone will be affected, whether government or the private sector, and the repercussions on the economy will be frightful.

Paying attention to Ghana’s development plans

Ghana’s economic challenges predate COVID-19 and of course, the ongoing war in Ukraine because there has been chronic failure in several aspects of our development. Global trends suggest increased political and economic shocks going forward and therefore we must find more sustainable ways of resolving our problems. Our nation needs to develop the necessary shock absorbers to offset such crises.

Ghana is locked out of the Eurobond market so our economy will now be run on its natural and intrinsic capabilities. This is a great opportunity to operationalize the nation’s development plans prepared by the National Development Planning Commission in recent years to catapult the nation into high-income country status. These documents include the National Development Plan, National Spatial Development Framework, Ghana Infrastructure Plan, draft Ghana Industrialization Plan, etc.

Expanding the economy, boosting tax revenues and reducing debt to GDP ratio

According to the broadcast by the President of Ghana on October 30, 2022, and also the documents made available to the IMF, Ghana is expected to reduce debt-to-GDP ratio from 100 percent to 55 percent by 2028. As far as the ratio is concerned, lowering it can be achieved in two ways; either the debt (the numerator) is reduced or the GDP (the denominator) is increased. My observation is that public discussions have focused almost exclusively on reducing debt without exploring alternatives for increasing GDP. A focus on growing GDP will enable the country achieve the ratio much quicker and in a much more sustainable manner.

A draft Ghana Industrialization Plan prepared for the NDPC in 2018 with the objective of transforming Ghana from a lower middle-income to a high-income country with per capita income of $25,000 in 30 years is one of the documents to rely on. Ghana already has everything it needs to develop; Cement from Limestone; Bitumen from Oil; Fertilizer and Methanol from Natural Gas; Plastics from Gas; Steel from Iron Ore and Manganese; Aluminium from Bauxite; Furniture from Timber; Bricks from Clay; Glass, Photovoltaic Cells, Microchips and Fibre Optic Cable from Silica Sand; Caustic Soda from Salt, Paints from Kaolin, Oil, Lithium Batteries from Lithium, etc. The exploitation of these raw materials will invariably lead to the establishment of several downstream industries, while value addition in itself creates tremendous wealth and several multiplying effects in the economy. For example, processing of raw iron ore to a high value steel product can yield a value addition multiplier of over 400 times.

Funding our development needs

So how do we transform all these plans into projects which will in turn transform lives when we don’t have the money? Generally, funding is integral to executing the industrialization plan. There is no need for Ghana to borrow so much from abroad, most of the money required for domestic investment can be generated internally. The citizens whose resources are being requisitioned in the DDE are the same owners of potential business conglomerates that the nation’s industrialization plan is expecting to fall on to make this country a rich and prosperous nation. Therefore, we should be careful not to destroy the confidence we need in local industry. All over the world, it is citizens that develop nations. This is why we must resolve this challenge for good.

Funding for large infrastructure and industrial projects has traditionally come from local resource mobilization, foreign direct investments, official development assistance, loans and bonds, pensions and insurance and other similar instruments. However, there are other sources of funding used by developed countries that have been overlooked by developing countries, including Ghana. These include mutual credit service transactions, land financing or land value capture, revenues from value addition to mineral resources, credit systems, Road Tolls, etc. Land benefit capture is the process where finance is mobilized upfront for infrastructure projects which reduces the burden of borrowing. It’s based on trust.

One of the avenues for raising funds and growing an economy is through domestic savings. Ghana has had a weak savings culture and efforts have been made to strengthen it over the recent past. According to World Bank development indicators, Ghana’s Gross Domestic Savings as a percentage of GDP is still lower than the African average. Yet, a good domestic savings culture is an imperative driver of growth.

State as the primary engine of the economy

During this period of liquidity crunch, the State should step up as the primary engine of the economy. The industrialization plan proposes the establishment of state-supported private institutions to drive the process. The Special Purpose Vehicle (SPV) responsible for managing the roll-out has an Enterprise Development Group that identifies projects, an Engineering Consortium that prioritises and develops them to engineering and implementation stages, an insurance company that evaluates risks and underwrites exposures of partners and potential clients, as well as a development bank. The SPV will facilitate investment in the processing of the country’s minerals, and also invest in other equities, take ownership of key State assets as necessary, and pay taxes like other investment firms. Its sole shareholder will be the Government, represented by the Ministry of Finance but functioning as a private sector entity. The company shall contribute to the Government’s budget through capital gains and dividends it pays to its sole shareholder as well as tax on its profits.

A proposed Ghana business trading platform

Under the industrialization plan, a large online trading platform of Ghanaian businesses – the Ghana Business Marketplace – is envisaged to credit and debit each other. These value chain and supply chain projects are then rolled out on the platform inviting individuals and businesses to bid, based on strong Ghanaian ownership, clearly defined corporate governance principles and other criteria to be established. Money has essentially been a relationship of credit and debit and will continue to be so. In simple terms, a value chain analysis identifies the full range of activities undertaken to bring a product or a service from its conception to its end-use by final consumers. At each step in the chain, value is added in some form or other. It will be an opportune time to pilot the Bank of Ghana E-Cedi digital currency on this platform. Money isn’t paper and coins anymore, it’s increasingly digital, and a growing number of central banks are considering their own digital currencies. The E-Cedi, equal in value to the cedi, will be used by businesses to make payments and transfer funds on the Marketplace. This targeted credit and debit transactions will completely reduce inflation.

Based on this analysis, Ghana’s industrialization plan identifies more than 50,000 value chain projects in several sectors of the economy to be executed in 10 years that would create more than 10,000 new businesses. More than 500 of these businesses are expected to generate an annual turnover exceeding $1 billion each by Year 10. In other words, if managed efficiently, we could have about five hundred billion-dollar annual turnover enterprises in Steel, Aluminium, Cement, Mining, Natural Gas, Salt, Cocoa, Logistics, Railways, Construction, Real Estate, Housing, Agro-processing, Pharmaceuticals, Light Manufacturing, Banking, Insurance, Fintech, Hospitality, etc. in the next decade. Indeed a list of potential bankable projects with planned sources of funding, estimated percentage stake of public and private sector funding of each project have been prepared for implementation as far as 2040. The average public sector funding component is less than 20 percent. If implemented properly the plan will see Ghanaians taking control of the entire economic fibre of the economy backed by the imminent power of the State. As early as Year 5, Ghana is projected to generate more than 5 million direct, indirect and related jobs. As the economy begins to expand, taxes must decrease in tandem to enable employment growth, increase disposable income, boost consumption and create a stimulus, and this will generate a virtuous cycle, enabling growth in government revenues. These arrangements will enable Ghanaian businesses take giant leaps in the AfCFTA to acquire the production capacity to trade at scale with the rest of the world as they take advantage of the AfCFTA. It will also guarantee raw materials, markets, supply chain networks as well as partnerships and insulate the companies from market fluctuations, thus enabling long-term planning in projects, which is a key element of the manufacturing industry.

Development is cyclical

Development is cyclical and once a country is able to link up the cycle through these value chain and supply chain activities, a key developmental headache is resolved. For example to construct roads, we link up engineers and other construction professionals, heavy equipment vendors and rentals, materials suppliers including laterite and quarried materials, and skilled and unskilled labour, etc. Good roads improve property and land values, ensure good ride quality, reduce vehicle operating costs, lower imports of spare parts and foreign exchange expenditure. Why is it so difficult to fund road and railway projects in Ghana when land and property values appreciate after their construction? When tolled, the investment in road construction can be recouped, debt repaid and more roads built. This model creates a virtuous cycle of growth and can be adopted for all our development needs. Ghana has everything it needs to develop and the worst thing we can do is to allow ourselves to be held hostage about money. Let’s look at an example from the Mobile Money (MoMo) sector. An amount of GH¢10 billion injected into the economy as money supply generated a transaction amount of GH¢1,000 billion (GH¢1 trillion) or $150 billion in 2021, and these are lessons we should adopt in charting our way out of poverty.

The industrialization plan is based on confidence and trust, without which the government cannot secure the necessary buy-in from stakeholders. So government cannot afford to lose trust with its citizens. Money has value because people believe that they will be able to exchange it for goods and services in the future. This ‘belief’ will persist so long as people do not fear central bank or government interventions. The ‘belief’ is based on trust citizens give to State institutions. The Latin name for Credit is ‘Belief’ or ‘Trust’, and credit is as good as money. In an industrializing environment, there must be trust between state institutions, corporate Ghana and the citizenry. So a tripartite deal – the Ghana Charter is crafted between the state, corporate Ghana and the citizenry to ensure that the success of one party is strongly linked to the others. The essence of the charter is that while the country needs the State to maintain its sovereign power, security and protection, corporate Ghana and industry are needed to drive the growth agenda through business innovation, while citizens put up law-abiding and responsible behaviour. Industrialization is not only about manufacturing, but a complete societal, economic and environmental change that transforms a country into an industrial society.

Ultimately, we shall be solving several interrelated fiscal and monetary policy issues in the economy – increased tax to GDP ratio, increased purchasing power and disposable incomes of workers, reduced size of the informal sector, increased insurance penetration, reduced cedi depreciation, reduced non-performing loans, reduced cost of credit, increased access to credit, reduced current account deficit, increased foreign exchange reserves, reduced interest rates and tighter control over inflation, and above all, good corporate governance principles.

If government is still keen on expropriating a portion of its citizens investments, why can’t it commit to exchanging these instruments for a portion of the expected industrial boom, i.e. swap the debt for interests in some of the cocoa value chain industries, or bauxite and steel values chain industries, or even high-end serviced land, etc. envisaged under the infrastructure and industrial programmes? Most of them will be worth several million dollars in a few years.

External debt

Concerning external debts, since the holders haven’t suffered the 50 percent inflation, and the United States Dollar has appreciated against all major currencies, government may consider some debt restructuring limited to interest rates cuts. Then mining and petroleum concerns which own 90 percent of our mineral resources must support us in our most critical time of need. In this era of commodity boom and supernormal profits, they can be levied a special tax over a limited period of 3 years to raise funds to off-set some of these debts. We should be fine by 2027 when initial aluminium and steel ingots start to pour out of the smelters.

In the medium term, we must re-examine our investment laws, particularly with regards to how investors easily enter and repatriate their profits outside the country. Companies that generate cedi revenues but repatriate dollar profits to their home countries should be invited to the table to discuss and negotiate the quantum of their profits that can be taken out, and the rest deferred for three or four years when the situation normalises. Ghana must move away from signing foreign currency denominated contracts for projects that require predominantly local currency expenditures – e.g. road and railway contracts. As a nation, Ghana must also implement their tax exemption laws. A whole lot of measures must be put in place to strengthen the cedi, and Ghanaians, especially our leaders must refrain from talking down on the currency.

Development is hard work

Development is hard work and unremitting toil, which should be embraced by both the citizens and agencies of state. This is borne out by the example and success of the Japanese and Korean economies. We have to work harder and smarter to create wealth. Hard work is not alien to us; after all, it was the rural farmers who developed the cocoa industry without the aid of foreign investment, and the Obuasi gold deposits were first discovered and mined by three indigenous Fanti entrepreneurs.

Looking inward

Our continued reliance on external partners for our development poses great dangers. The debt exchange programme is too foreign driven which is dangerous for the economy. No nation has ever been developed by outsiders. Every developed nation has been built on the sweat and blood of its citizens, and Ghana must evolve an economic policy that suits her own interests. We need to take matters into our own hands. The roots of the challenges presently bedevilling us are decades old. Thus, similarly, we do not have to make decisions and craft solutions on the basis of our present circumstances; we have to think of the future.

Why do we borrow to fund road projects when the state owns the laterite, and the aggregates, and the land, and we have a refinery that can be retooled to produce bitumen, and there are Engineers looking for work, and more than 1,000 excavators are available, idling, and worst of all, when we construct the roads, the land and property values increase. The President of Rwanda, Paul Kagame said, “I would rather argue, that we need to mobilise the right mindsets, rather than more funding. After all, in Africa, we have everything we need, in real terms. Whatever is lacking we have the means to acquire. And yet, we remain mentally married to the idea that nothing can get moving, without external finance. We are even begging for things we already have. That is absolutely a failure of mindset.”

Ghana has more than our fair share of natural resources. How can a nation so rich in natural resources and so endowed say it cannot pay its debts? The least we can do is to negotiate for more time and put systems in place to pay the debts. And above all, we have some of the smartest people on this planet.


The domestic debt exchange programme will create problems in the economy that could stifle recovery for an unduly long time. Among other things, it could create mistrust in the investment sector, trigger capital flight, depreciate the currency and shrink pension payments. It will drastically reduce the purchasing power of the Ghanaian, create liquidity challenges, worsen unemployment and probably even lead to political unrest.  Worse of all, it will do the exact opposite of what it was meant to achieve, i.e. weaken the financial sector, reduce tax revenues and loss of confidence in the economy. This potential policy disruption will have severe implications for the middle class who are the next generation business owners, financiers, factory owners, real estate magnates, contractors, the industrialization plan would rely on to turn the economy around. Ghana needs her banks, the insurance companies, the pension funds and most importantly, the support of the middle class now, more than ever.

Already, as a result of the debt exchange programme, confidence is eroding and contractors are laying off staff and cancelling orders already made for construction materials, e.g. cement, iron rods, etc. For the first time, auctions of government instruments such as cocoa and treasury bills are being undersubscribed despite high interest rates. The financial sector is so interconnected that anything that happens to one sector affects the other.

But the challenges confronting the nation actually cloak the seeds of opportunities for us. Our challenges are not unsurmountable. We’re harnessing less than 5 percent of our capabilities but the full potential of the country must be unlocked to develop the country. We have to change a lot of things. Even though we’ve pressed the panic button, measures enumerated above will calm down the market and set us up for sustained growth.

We can only solve our problems if we’re productive and efficient. The existing draft industrialization plan focuses on production to generate employment to make Ghana a prosperous and resilient nation when implemented. We may not have the roads constructed in six months but our compatriots will be holding contracts with renewed optimism, with networks linking producers and consumers. The renewed confidence will enable employers to begin hiring again, and also secure loans for expansion. The NDPC must be resourced to fully undertake its constitutionally mandated responsibilities. If well implemented, a year that was envisaged to be our worst year could turn out as our best, ever.

By Charles K. Boakye

Email: [email protected]

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