NPRA to implement forbearance measures for Pension Funds amid $2.6bn debt exchange treatment
The National Pensions Regulatory Authority (NPRA) in Ghana is expected to introduce forbearance measures to alleviate the prudential requirements imposed on pension fund companies following their agreement to the proposed debt exchange treatment of approximately $2.6 billion in pension funds held by the government. The introduction of forbearance measures is aimed at addressing the potential capital problems and operational challenges that 21 out of the 28 pension trustees may face as a result of the debt reorganization.
Ghana’s pension funds are on the verge of finalizing a deal to restructure the $2.6 billion worth of government bonds they currently hold, as reported by the umbrella body for the industry, the Chamber of Corporate Trustees. Under the proposed plan, the pension funds would receive higher interest payments, albeit over a more extended period, according to Thomas Esso, the executive secretary of the Chamber of Corporate Trustees. Currently, the pension funds hold local-currency securities that are set to mature earlier than the bonds they would receive in the proposed swap.
The government has requested the pension trustees to exchange their existing securities, which carry an average coupon rate of 18.5%, for two new bonds maturing in 2027 and 2028, offering an average interest rate of 8.4%, as stated by Esso. To compensate for the difference in interest payments, the government plans to provide the holders with additional securities, issued in February, as well as an extra cash-payment instrument carrying a 10% interest rate. This arrangement would result in a total stream of coupon payments amounting to 21%, Esso explained.
Preserving the value of the pension funds is the primary concern for the members of the Chamber of Corporate Trustees. Esso emphasized that their technical team thoroughly reviewed the proposal and concluded that it effectively achieves their objective of value preservation. The proposed debt exchange treatment offers a viable solution that safeguards the interests of the pension funds and ensures the sustainability of the pension system.
The implementation of forbearance measures by the NPRA is crucial in this context, as it will provide temporary relief to the pension fund companies, allowing them to navigate the challenges arising from the debt reorganization. These measures would help mitigate the potential adverse effects and ensure the continued financial stability and viability of the pension industry in Ghana.
As the agreement between the pension funds and the government nears finalization, the focus now shifts to the NPRA’s implementation of the forbearance measures and the subsequent execution of the debt exchange treatment. This development signifies a significant step toward resolving the debt restructuring issue and underscores the commitment of all stakeholders to safeguarding the integrity and long-term sustainability of Ghana’s pension system.
