Gov’t commits $500m initial capital to Ghana Financial Stability Fund
The Government of Ghana has unveiled plans to inject a substantial $500 million as initial capital into the newly formed Ghana Financial Stability Fund (GFSF), with a targeted launch date set before the end of October 2023. This significant announcement was detailed in the Operational Document of the Ghana Financial Stability Fund, a publication released by the Ministry of Finance.
The Ministry of Finance has articulated its intention to provide financial backing to the GFSF in alignment with the resources outlined in the Extended Credit Facility (ECF) macro-framework baseline. The infusion of these funds is poised to be executed in phases, with the overarching goal of bolstering the financial sector’s capital reserves in the wake of challenges stemming from the government’s debt operations.
Key components of the financing strategy involve the allocation of the cedi equivalent of $750 million for the first phase of GFSF funding. This allocation will be financed through a $250 million concessional loan from the World Bank/IDA and a significant $500 million from the government. The government’s contribution will be sourced from cash reserves and marketable bonds, a move aimed at fortifying the financial sector’s capital buffers following the repercussions of government debt management operations.
The issuance of a novel benchmark bond series under the Domestic Debt Exchange Programme (DDEP) is also on the horizon as part of the funding mechanism. Furthermore, the government is prepared to extend the requisite fiscal support to safeguard the stability of the financial system.
In terms of governance structure, the GFSF is set to be overseen by a nine-member Investment Committee (IC), featuring four independent experts nominated by industry associations and subsequently approved by the Ministry of Finance. Additionally, Development Partners (DPs) may suggest observers to the committee, pending approval from the Minister for Finance. These observers could emanate from other DPs supporting Fund A or B, subject to mutually agreed terms with the Government of Ghana.
The fund is poised to be divided into two main segments, Fund A1 and Fund A2. Fund A1, which is exclusive to debt, will be seeded by a $250 million World Bank/IDA loan for the recapitalization of banks and Special Deposit-Taking Institutions (SDIs). On the other hand, Fund A2, encompassing equity and preference shares, will receive initial funding of up to $500 million from the Government of Ghana, earmarked for banks, SDIs, insurance companies, fund managers, broker-dealers, and other financial institutions.
Underpinning this initiative is the objective of minimizing the adjustment burden on the financial sector, notably banks and insurance companies, over the medium term. By doing so, it seeks to avert systemic financial crises and facilitate the orderly unwinding and market-based solutions for the long term.
As conditions for funding banks and other financial institutions are outlined, it is made clear that solvency support will be structured on commercial terms, mirroring those available to private investors. It will not constitute bailouts, although concessionary commercial rates might be considered, contingent on improved governance structures.
Recapitalization efforts for these institutions over the next three years will rely on a hierarchy that includes capitalization by existing shareholders, the injection of new equity capital by new investors sanctioned by existing shareholders, and support from the government, subject to specified eligibility criteria.
The launch of the Ghana Financial Stability Fund marks a significant stride in safeguarding the resilience of Ghana’s financial sector and ensuring its vitality in an ever-evolving economic landscape.
