Securing IMF deal without DDEP would have been challenging – BoG

Dr. Philip Abradu-Otoo, the Director of Research at the Bank of Ghana (BoG), has explained that securing a bailout from the International Monetary Fund (IMF) would have been nearly impossible without the implementation of the Domestic Debt Exchange Programme (DDEP).

To stabilize the economy, the government launched the IMF programme and introduced the DDEP, which led to some bondholders facing reductions in their investments and coupons.

In 2022, the BoG reported a significant loss of GHS 60.9 billion due to impairments linked to the domestic debt exchange programme.

In an interview with Bernard Avle on The Point of View on Citi TV, Dr. Abradu-Otoo highlighted the challenges the government would have encountered without the DDEP, stating, “The biggest one was the impairment we had on the securities that we were holding. Just like any other individual, the BoG was also holding government securities. Out of that GHS 60.9 billion, GHS 48 billion of that were impairment. That is the losses that we incurred on our books, as a result of the DDEP.”

He emphasized the necessity of the programme, saying, “For the debt exchange programme, nobody had a haircut on the principal…for the BoG, we had the side haircut, and top haircut and the amount itself was cut into two. We had three, we had to do that because we needed that to secure the IMF programme. It would have been tough to move forward very fast. Then we would have come back to the drawing board and relook at the other parts of the DDEP.”

When asked if the BoG would have disagreed with the impairment if given the choice, he confirmed, “Yeah”.

To address the financial strain on the BoG, a Memorandum of Understanding (MoU) for early recapitalization is expected to be signed by the end of the third quarter of this year. This MoU aims to restore the financial health of the central bank, which recorded a GHS 10.5 billion loss in 2023 due to high expenditure on monetary interventions, and the GHS 60.9 billion loss in 2022 from impairments during the DDEP.

The Ministry of Finance and the Bank of Ghana will sign the MoU to ensure that the Central Bank can continue fulfilling its mandate of managing monetary policy and ensuring price stability.

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