Accra: Ghana must never again be pushed to domestic debt restructuring, as highlighted by recent discussions around the Domestic Debt Exchange Programme (DDEP). The DDEP, implemented by the current administration, was not a celebration of policy success but an emergency measure to stabilize a severely distressed economy plagued by unsustainable debt and macroeconomic mismanagement.
According to Ghana Web, the necessity of the DDEP underscores the severity of the crisis Ghana faced, with fiscal and debt indicators deteriorating sharply by 2022. Public debt levels became unsustainable, and interest payments began consuming a large portion of the national budget. The country also lost access to international capital markets, defaulting on external obligations in December 2022. This was accompanied by surging inflation, currency depreciation, and widening fiscal deficits, leaving few options beyond seeking an IMF program and restructuring domestic debt.
The DDEP came with significant economic costs. It resulted in losses across the financial system, affecting stakeholders such as the central bank, commercial banks, pension funds, and investors. The Bank of Ghana reported a loss of approximately GHS60.8 billion in 2022 due to the impairment of government securities. This restructuring reduced coupon payments and extended maturities, impacting the value of assets.
Ghanaian banks also faced substantial challenges, recording billions of cedis in losses linked to the restructuring. Capital buffers were eroded, requiring regulators to allow additional time for balance sheet rebuilding. Banks had to reassess their risk exposure to sovereign debt, traditionally viewed as a safe asset, impacting profitability and constraining credit extension to businesses and households.
Investors and pension funds experienced reduced coupon rates and longer maturities for government bonds, lowering the present value of these investments. This led to lower returns for pension funds, asset managers, and individual bondholders, affecting retirees and investors relying on government securities as stable long-term assets. The broader implication was a loss of confidence in domestic government bonds, potentially raising future borrowing costs for the government.
The DDEP's consequences will continue to affect Ghana's financial system for years. Although the restructuring reduced immediate debt-servicing pressures, the government must still honor payments on the restructured instruments. The Bank of Ghana needs time to rebuild its balance sheet strength following restructuring losses, and these adjustments will shape fiscal and monetary policy.
The real policy lesson from this episode is the importance of prudent debt management and disciplined fiscal governance. Governments must align borrowing with revenue capacity and long-term growth. Avoiding future crises requires stronger fiscal discipline, transparent economic management, and a commitment to sustainable public finances. The DDEP serves as a reminder of the high price economies pay when fiscal prudence is neglected, emphasizing that Ghana must avoid reckless management leading to necessary domestic debt restructuring programs.