The International Monetary Fund (IMF) has corroborated the Bank of Ghana’s position regarding the ₵60.8 billion loss incurred in 2022, as well as the ₵55.1 billion negative equity recorded, attributing these outcomes directly to the bank’s involvement in the Domestic Debt Exchange Programme.
According to a recent post of frequently asked questions (FAQs) on its website, the Bank of Ghana clarified that a substantial portion (₵53.1 billion) of the ₵60.8 billion loss reported in its audited accounts for 2022 was directly linked to three elements that were significantly affected by the government’s Domestic Debt Exchange Programme (DDEP).
The DDEP, in conjunction with an external debt restructuring initiative, played a crucial role in securing a US$3 billion extended credit facility from the IMF to stabilize Ghana’s struggling economy.
Explaining the factors behind the loss, the central bank stated that “the primary reason for this substantial loss is the devaluation of the holdings of tradable government securities and non-tradable government instruments”, both of which were present on its balance sheet.
“These government securities have been accumulated over time”, the bank observed.
Furthermore, the central bank indicated that its “exposure to [Ghana Cocoa Board] COCOBOD, which has been built over the years, was also impaired” by the DDEP.
The bank highlighted that its “holdings of government instruments and COCOBOD exposures were all part of the scope of the debt exchange”. It clarified that while other stakeholders who participated in the DDEP received new instruments with altered tenors and coupon structures, the Bank of Ghana absorbed losses to enable the government to meet the IMF program’s approval criteria.
Hence, the Bank of Ghana incurred a 50% principal reduction on the total principal (amounting to ₵64.5 billion at the time of the exchange), leading to new instruments with extended tenors and significantly lowered coupons.
The bank revealed that applying the full guidelines of IFRS 9 indicated that “the 50% reduction in principal alone for the non-tradable instruments resulted in a loss of ₵32.3 billion”.
It further noted that the “loss due to exposure to COCOBOD amounted to ₵4.7 billion”. These three DDEP elements (tradable, non-tradable, and COCOBOD) summed up to ₵53.1 billion out of the total ₵60.8 billion loss for 2022.
“Additionally, price and exchange rate valuation effects contributed ₵5.2 billion to the overall loss, while interest expenses related to the cost of monetary policy operations accounted for ₵3.3 billion”.
Concurring with the Bank of Ghana’s explanation, the IMF remarked that the Ghanaian authorities’ domestic debt exchange program was “a crucial component of their strategy to restore macroeconomic stability and ensure the sustainability of public debt”.
The IMF noted that the Bank of Ghana’s participation in the DDEP aimed to “share some of the burden placed on government debt holders, alongside banks, financial institutions, pension funds, and individuals”.
The IMF clarified that the loss incurred by the Bank of Ghana “has contributed to reducing its net equity to a negative value”. However, this situation doesn’t hinder the bank’s ability to fulfill its policy mandates and guide inflation back toward its 8% target.
The IMF also emphasized that the central bank’s income is projected to cover the operational expenses of monetary policy.
Furthermore, the IMF predicted that the Bank of Ghana’s net equity would improve significantly over time, eventually returning to positive levels.
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