ISSER boss urges Ghana to learn from Zambia’s debt exchange success
In a thought-provoking address at the ISSER Development Dialogue, Professor Peter Quartey, the Director of the prestigious Institute of Statistical, Social, and Economic Research, underlined the critical importance of Ghana drawing invaluable insights from Zambia’s recent debt exchange triumph.
Under the captivating theme, “The Effects of a Second Round of Debt Exchange in Ghana,” the stage was set for a compelling comparative analysis.
Zambia, with remarkable finesse, masterminded the restructuring of a some US$6.3 billion debt owed to official bilateral creditors. Their ingenious approach extended debt maturities by over a decade while slashing interest rates to a mere 1.0% for 14 years, gradually rising to a maximum of 2.5% thereafter.
This strategic financial maneuver is anticipated to net Zambia a staggering US$5.0 billion in debt service payment savings from 2023 to 2031, a feat worth applauding.
In stark contrast, Zambia has committed to repaying its official creditors approximately US$750 million over the coming decade, a profound reduction from the initial debt burden of nearly US$6.0 billion.
As Ghana navigates its intricate debt exchange voyage, Professor Quartey fervently underscored the paramount significance of assimilating these invaluable lessons.
At present, Ghana finds itself in the crucial finalization stages of its bilateral debt agreements, with the added complexity of domestic debt management.
A crucial takeaway from Zambia’s experience lies in safeguarding domestic financial stability. Zambia wisely chose not to restructure non-resident holdings of local currency bonds and Treasury bills, prioritizing the health of its financial sector. This prudent decision offers Ghana an instructive blueprint as follows:
- The Frenzy for Treasury Bills: The allure of high-interest rates on Treasury Bills can exacerbate the debt situation and inflict financial strain.
- Crowding Out Private Enterprise: Excessive government investment in Treasury Bills can discourage private sector participation, casting a shadow on economic growth prospects.
- The Ripple Effect on Lending Rates: Elevated lending rates act as a deterrent to private sector borrowing, affecting businesses and overall economic expansion.
- The Nexus to Financial Sector Stability: Safeguarding the robustness of the financial sector assumes paramount importance in nurturing overall economic well-being.
Professor Quartey closed his address by reiterating that Ghana’s ongoing debt exchange should be astutely guided by the sagacious lessons discerned from Zambia’s experience. Striking an exquisite equilibrium between securing favorable terms and fortifying domestic financial stability stands as the linchpin to ushering in a future marked by economic steadfastness and prosperity.
