Decision to take haircut conveyed a good message to outside partners and saved the economy, according to BoG

According to the Bank of Ghana (BoG), taking a 50% haircut on the government’s debt prevented the economy from collapsing and conveyed a positive message to outside partners.

As a result of the government’s Domestic Exchange Programme (DDEP), which resulted in a 50% haircut on Bank of Ghana’s non-marketable holdings of government of Ghana instruments like long-term stocks, a COVID-19 Bond, and overdrafts, the bank suffered a loss of GH55.12 billion in 2022.

Additionally, the Bank’s other claims (holdings of marketable instruments) were exchanged under the DDEP on terms that were comparable to those of other financial institutions, resulting in an impairment of GH48.40 billion in 2022.

“With BoG being the absorber, the external partners are also watching. Remember they also need to go through some debt treatment but before that, they needed to see what will happen to the Bank of Ghana and now that they’ve seen that, it will send a signal to them”.

“With this, I’m sure it will make the process go faster because the biggest policy institution has taken a haircut,” said Dr. Philip Abradu-Otoo, Director of Research at BoG.

Additionally, due to exchange rate depreciation, the Bank experienced revaluation losses on its international assets and liabilities, resulting in a total loss of GH55.12 billion in equity in 2022.

The Central Bank promised to take action, including getting the government to support recapitalization, to ensure that equity was back on a positive trend by the end of 2027.

Dr. Abradu-Otoo stated that despite difficulties resulting from the Domestic Debt Exchange Programme (DDEP), the BoG remains committed to policy solvency, actively managing inflation, and guaranteeing financial stability.

Source: Ghanatodayonline.com