Gov’t may explore Creditor Committee to restructure debt – Bright Simons
Vice-President of IMANI-AFRICA, Bright Simons, has recommended the setting up of a Local Creditor Committee to help restructure the country’s debt and also expedite the country’s engagement with IMF over the aid package.
As Ghana awaits the IMF to continue further talks, Mr. Simons has stated that the Creditor Committee could be one route government could explore, he explains it as the assembling of all creditors with some having representations of proxies – with decision being made by votes.
“In taking the creditor route, there are advantages and disadvantages, the first advantage is that without collective action clauses system, this is the only way you increase efficiency of decision making, everybody comes to the committee and you deliberate on how to handle it.
“Then there is the consultative method where you literally call the investors [big ones] usually the majority action rules if you get the big guys to agree, then you leave the hold outs, most of them will not go to court but there is a risk, in fact there is evidence that suggests that over the last two decades the number of people that refuse to accept the determined rate are the majority of big lenders, the number of people that go to court has been increasing exponentially.
According to him, Ghana has to be careful how it approaches this route, for him the grey area has to be the local banks –“most of them because of political exposure are going to be very careful, I don’t see any commercial banks taking the government to court but there still 12 to 15 percent or so of our bonds that are held by non-resident investors [non Ghanaian].
He however warned that these non-Ghanaians that hold the country’s bond , some might go to court, “so government might decide it will prioritise in a consultative model and have a local creditor committee, it will enable them to apply a lot of political pressure. There will be factors that will help government on the local bank front.
Further, he also indicated that government has the advantage of local law stressing that, “when you do an external debt restructuring you are confronted with the fact that , a lot of bonds are subject to English law and if that is the case, it is not as easy to make adjustments to local law to address it – because domestic debt are governed by local law, the government can go to parliament and make laws to affect a whole bunch of things, so it helps the government.
For the disadvantage, he said that, “if the central bank should begin to treat regulatory capital differently, all the people that have bonds as part of their Tier 1 or other liquidity requirements they are going to have some adjustments that allows you then not to market, it is safe up to point, but you will have challenges with liquidity in some fringe areas.”
He also revealed that some banks are already on the brink of capital distress, insolvency in the country.
As far as the debt restructuring is concerned, he proposed a law -which he says may make certain things easier, a creditor control but urged that government should be careful how it is structured, and also advised government to undertake an asset quality review before the attempt on bank side – banks owe about 50 percent of the government debt, “that is a lot, but the households to my mind even if they suffer from a reprofiling I think they will bare it more easily than the banks but the vulnerable banks may not survive, so we have to be careful.”
Ghana turned to the IMF for help in July as its balance-of-payments deteriorated.
It is understood that an eventual agreement between Ghana and the IMF will likely consist of $3 billion in financing over a three year period, and contain elements of both Extended Credit Facility (ECF) and Extended Fund Facility (EFF) programmes.
