- Ghana Must Not Waste Debt Relief Gains After Bondholder Sacrifices — Prof. Bopkin
Ghana’s improving debt position owes more to the sacrifices made by domestic bondholders, Eurobond investors and pensioners under the country’s debt restructuring than to the operations of the Ghana Gold Board, economist Professor Godfred Bopkin has argued.
Prof. Bopkin said the financial space now reflected in lower debt ratios and reduced debt-servicing pressures was created principally by creditors who accepted restructuring terms when Ghana was unable to meet its obligations on the original schedule.
“The unpopular domestic debt exchange has played a key role. Remember that those who gave Ghana fresh air were actually not GoldBod,” Prof. Bopkin said.
His argument seeks to shift part of the public discussion over Ghana’s recent macroeconomic improvement away from institutions created or expanded after the crisis and towards the creditors who absorbed the direct cost of the country’s debt restructuring.
“Those who gave Ghana breathing space to have what we have today were domestic bondholders who sacrificed, were Eurobond holders who sacrificed, who came to the table when Ghana needed help the most,” he said.
Ghana’s debt crisis was not resolved simply by improving revenue mobilisation or accumulating foreign exchange. A central component of the adjustment involved changing the terms under which large portions of the country’s domestic and external debt would be repaid.
That restructuring altered maturities, payment schedules and returns to creditors, relieving immediate pressure on government finances and helping to restore the debt path towards levels regarded as sustainable under the IMF-supported programme.
Prof. Bopkin said pensioners were among the groups that should be recognised for carrying part of that adjustment.
“Those who gave Ghana sweat equity, who gave Ghana fresh air to breathe, and I think we need to recognise them today, including pensioners and all of them, who endured a haircut. They didn’t even get a chance to choose the style of the haircut,” he said.
The remarks underline the distributional cost of sovereign debt restructuring. For government, restructuring can produce fiscal relief by extending repayment periods and reducing near-term debt-service requirements.
For creditors, however, that relief is achieved because contractual expectations are changed.
Domestic investors who expected payments under the original terms of government securities had to absorb altered repayment structures, while external creditors also negotiated concessions as Ghana sought to close the financing gap underpinning its economic programme.
Prof. Bopkin argues that any assessment of the country’s improved debt indicators should therefore recognise who provided that relief.
He said Ghana entered its IMF-supported adjustment with a balance-of-payments financing gap of about US$13.50 billion, at a time when the domestic gold-purchase operations now associated with GoldBod were far smaller.
In his view, that chronology matters because it challenges attempts to attribute Ghana’s restored debt sustainability primarily to the country’s more recent gold-sector interventions.
The debt restructuring preceded much of the current debate around GoldBod and directly addressed the stock and servicing profile of Ghana’s public debt.
Gold-sector reforms may affect foreign-exchange inflows, reserves and the wider external account, but those functions are different from the debt relief produced when creditors agree to accept changes to repayment terms.
Prof. Bopkin therefore called for greater recognition of domestic bondholders, Eurobond holders, pensioners and bilateral creditors whose concessions helped create the fiscal space Ghana now enjoys.
That space has become increasingly important as the country emerges from one of the most severe episodes of macroeconomic instability in its recent history. Lower debt-servicing requirements give government greater room to direct scarce revenues towards other expenditures.
But Prof. Bopkin cautioned that fiscal space should not be mistaken for a permanent improvement in Ghana’s underlying economic structure.
He recalled that Ghana’s participation in the Highly Indebted Poor Countries initiative and the Multilateral Debt Relief Initiative helped reduce the country’s debt-to-GDP ratio to below 30.00%. That represented a substantial reset of the public balance sheet.
Ghana subsequently rebuilt debt pressures and returned to the IMF in 2009, providing what Prof. Bopkin sees as a warning against treating debt relief as a substitute for durable fiscal discipline.
“It’s good news we are celebrating this fiscal space. Let’s put in place the right structures, spend efficiently, borrow prudently, and invest it in enhancing the cash flow-generating capacity of the economy. Otherwise, we have been there before,” he said.
Debt restructuring can reduce the burden of yesterday’s borrowing, but it does not prevent tomorrow’s debt crisis. If lower debt service creates room for productive investment capable of expanding tax revenues, exports and economic output, the restructuring can become part of a genuine balance-sheet repair.
If the space is instead followed by renewed fiscal slippages, inefficient expenditure and another cycle of heavy borrowing, the gains can disappear quickly.
Prof. Bopkin is therefore effectively drawing a distinction between debt relief and debt discipline.
The first has already been partly delivered through creditor concessions. The second remains a continuing responsibility of government. The history of Ghana’s previous debt-relief experience strengthens that point.
Large reductions in debt can create the appearance of abundant borrowing capacity, particularly when investors regain confidence and credit markets reopen.
But precisely because the debt burden has fallen, policymakers may again be tempted to expand borrowing faster than the economy’s capacity to generate the revenue required to service it.
How policymakers discuss and treat creditors after a restructuring can therefore affect confidence long after the immediate crisis has passed.
Domestic pension funds, asset managers, banks and individual investors remain central to Ghana’s ability to mobilise long-term local-currency capital.
Rebuilding trust with those investors will be important if Ghana wants to deepen its domestic debt and corporate capital markets without becoming excessively dependent on foreign borrowing.
The retrospective point is that Ghana’s improved debt indicators were achieved partly because creditors accepted losses, delays or changes to what they had originally been promised. The forward-looking point is that government now has an obligation not to squander the breathing space they created.
Ghana has received debt relief before and rebuilt unsustainable debt afterwards. Whether the current episode produces a different outcome will depend less on celebrating the fall in the debt ratio than on what happens to borrowing, expenditure and investment from this point.
The real tribute to the pensioners, domestic bondholders, Eurobond investors and other creditors who absorbed the cost of restructuring would therefore not simply be public recognition. It would be ensuring that Ghana does not ask them or another generation of investors to make the same sacrifice again.
