Bank of Ghana clarifies losses after Reuters report

Ghana’s central bank has clarified its current financial position following a Reuters report saying the Ghanaian government “has written off” half of its debt to the central bank.

The central bank reported a 60.8 billion cedi ($5.4 billion) loss in its 2022 annual report, due mainly to a domestic debt restructuring programme.

In a July 28 report, Reuters said the Ghanaian state had cancelled half of a sum of 77.6 billion cedi “it owed to the central bank and replaced the remainder with a lower yielding, 15-year bond”. The newswire cited “three sources with direct knowledge of the transaction”.

Reuters quoted an official saying the central bank had opposed the haircut, but that the International Monetary Fund nevertheless “made it clear that we cannot achieve our target on debt restructuring if we do not include the [central bank debt]”.

However, Philip Abradu-Otoo, research director at the Bank of Ghana, explains the central bank’s losses stemmed from the Domestic Debt Exchange Programme (DDEP), which reduced the value of the Bank of Ghana’s government assets. He tells Central Banking he is unsure which bond holdings Reuters included in its calculations of DDEP’s impact.

Abradu-Otoo says the Bank of Ghana held 80.5 billion cedi in government debt at the end of 2022. Of this, 16 billion cedi was “marketable government of Ghana debt,” which was restructured in February with a new rate and maturity, “along similar terms [as those] for the commercial banks”. This restructuring caused a loss of 4.04 billion cedi.

The other 64.5 billion cedi of “non-marketable instruments” was restructured in May. Abradu-Otoo explains this debt included almost 38 billion cedi from an overdraft to the state that was then securitised. Bloomberg first reported the securitisation plan in early February.

Unlike the marketable bonds, the non-marketable bonds underwent a 50% haircut, causing “an outright loss of 32.3 billion cedi on the balance sheet of the central bank”, Abradu-Otoo says. The Bank of Ghana then entered the bonds onto its accounts, where they “had to be fair-valued in line with market trends”, which resulted in another loss of 12 billion cedi.

“In all, the 50% haircut on the non-marketable instruments and the loses arising out of the fair-valuation of the non-marketable instruments totalled some 48.4 billion cedi,” Abradu-Otoo says.

The remaining losses come from non-performing loans, almost wholly due to one loan to the Ghana Cocoa Board, and “losses from price and exchange valuations and interest expense”, Abradu-Otoo concludes.

Ghana has suffered from currency depreciation, diminishing reserves and debt distress. The country defaulted on part of its external debt in December.

The IMF granted Ghana a $3 billion, three-year loan package in May. Among its provisions is a halt to monetary financing, fewer interventions to defend the cedi and tighter monetary policy.

The IMF and Ghanaian officials also discussed whether and how to recapitalise the Bank of Ghana. Abradu-Otoo says “the current stated capital… is 10 million cedi and this will have to be increased over time”.

Ghanaian authorities are taking several measures to build up the central bank’s capital base, including retaining profits, halting monetary financing and changing investment strategies. The central bank is also “assessing the potential need for recapitalisation support from government”, Abradu-Otoo says.

“Despite the loss, the bank will continue to be policy solvent and will continue to discharge on its mandate of inflation”, the research director emphasises.

Ghana most recently raised its policy rate in late July by 50 basis points, to 30%, the latest in 1,650bp of increases since November 2021. Inflation has fallen somewhat from its peak, but remains very high, with a 42.5% headline figure for June.