The Bank of Ghana’s strategic decision to execute a 50 percent haircut on the government’s debt has emerged as a pivotal intervention that has rescued the economy from potential collapse. This proactive measure also reverberates positively among external partners, who have been closely monitoring the situation. Dr. Philip Abradu-Otoo, Director of Research at Bank of Ghana (BoG), affirms that this bold step sends a clear signal to the international community.
Highlighting the significance of BoG’s role as the debt absorber, Dr. Abradu-Otoo underlines that the actions of the Central Bank resonate not only domestically but also with external partners. The process of debt treatment requires collaboration, and the Central Bank’s proactive approach sets a precedent that enhances the efficiency of the overall process. As BoG has taken the lead by adopting a substantial debt haircut, it paves the way for smoother negotiations with external stakeholders.
In 2022, the Bank of Ghana encountered challenges, incurring a loss of GHS55.12 billion primarily due to the government’s Domestic Exchange Programme (DDEP). Non-marketable holdings of Government of Ghana instruments underwent a 50 percent haircut, impacting the Bank’s equity. Additionally, the revaluation losses on foreign assets and liabilities stemming from exchange rate depreciation contributed to this financial setback.
However, the Bank remains resolute in its commitment to financial stability. Despite challenges stemming from the Domestic Debt Exchange Programme, Dr. Abradu-Otoo reiterates that BoG remains devoted to policy solvency and vigilant inflation management.
The decision to implement a significant debt haircut demonstrates Bank of Ghana’s proactive role in steering the economy away from potential collapse. This move not only safeguards the economy but also conveys a positive message to international partners, fostering confidence and collaboration in debt management. As the Bank of Ghana remains steadfast in its commitment to financial stability, the nation’s economy is poised for continued growth and resilience.
