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Bankers apprehensive over Treasury debt restructuring

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Amid the imminent restructuring of the nation’s public debt, bankers in the country are entreating managers of the economy to be circumspect in their decision-making so as not to destabilise the budding financial sector and erode recent gains made; especially as it pertains to investor confidence.

At the 39th Annual General Meeting (AGM) of the Ghana Association of Bankers (GAB), there was evident and palpable concern about how the restructuring will impact the asset structure, earnings and operations of banks.

At the meeting, its president Mansa Nettey said inasmuch as central government is taking the necessary actions to achieve debt sustainability, this should be done in a manner that does not erode gains made in the sector.

“Government must ensure that this is not done at the cost of financial sector stability, inadvertently undoing so much of what has been achieved in strengthening the banking sector – as a sound and stable economy needs an equally sound and stable banking system, one that can support the country’s long-term goals.”

According to budget figures, the nation spent GH¢20.5billion (US$2billion) in first-half of the year paying its debts – equivalent to 68 percent of its tax earnings. By end of June, the total amount owed by government had risen to GH¢393.4billion or 78.3 percent of Gross Domestic Product (GDP).

In response, central government started a proposed three-year Enhanced Domestic Programme engagement with the International Monetary Fund (IMF) in July for US$3billion – joining a number of emerging markets that are being forced to default or restructure some of their debts this year. This was done after efforts to stop the sell-off of its Eurobonds and halt a record depreciation of the cedi against the dollar failed – including cutting discretionary state spending by as much as 30 percent.

Mrs. Nettey – who doubles as chief executive officer of Standard Chartered Bank – further stated that while the industry recognises drastic measures need to be taken by the central bank in effectively combatting inflation, it is necessary that banks are encouraged with regulatory incentives to soften the impact.

“We recognise that the Bank of Ghana had to front-load the tightening; however, it is necessary that they are provided with regulatory incentives to help them navigate the current economic challenges and continue to support the economy,” she argued.

With the expectation of a tough business environment in the near-term, she said it is important that banks review existing operations and investment strategies to ensure sustainable performance as they remain risk-aware and undertake effective credit management processes.

At a recent engagement on Joy FM’s NewsFile, Director of the Financial Sector Division at the Ministry of Finance, Sampson Akligoh, offered assurances that government will take into consideration all stakeholders and not do anything to jeopardise the domestic financial sector.

The Zambian Case

Following the Fund’s approval of a US$1.3billion scheme for the southern African nation, Zambia will restructure its debt through a combination of haircuts to the initial value of its loans and maturity extensions. The process of renegotiating debt that will total US$17billion by the end of 2021 has begun.

This continues to be a critical milestone in the southern African nation’s quest to restructure its debts and restore an economy decimated by poor management and COVID-19; it allows the IMF to make an immediate payout of around US$185million.

In 2020, Zambia was burdened with debt that had reached 120 percent of its gross domestic product and made history as the first African nation to experience a pandemic-induced default.

 

 

 

Source: Thebftonline.com

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