Dean of the University of Cape Coast school of business, Prof John Gatsi, has underscored the relevance for further engagement with Eurobond holders on the haircuts proposition by government.
According to him, this is not the end of the negotiation process, and government must also not forget that creditor-borrower relationship is rooted in law.
Owing to this, Prof Gatsi stated that because government has borrowed the money and promised to pay coupons when they mature, it must go by the agreement.
He explained that if government cannot go by the agreement, it cannot impose its way on the agreement just because it cannot pay.
As a consequent, Prof Gatsi noted that “convincing the creditor is the way to go, but just setting your target and imposing that target on the creditor is as though you don’t want the creditors support, and you cannot do that the way you do it in the domestic debt exchange. When you do that in the external creditor community, you will fail”.
“So, I believe this is just the first step, we have seen creditors reacting negatively to that call. So, the government should be aware and look at what to put on the table next. But I believe the 40% is not in the interest of creditors that’s why they’re reacting…
“They have started reacting negatively, we saw what was happening – at least I think when the announcement came. So, the bonds start plummeting, that’s the signal they’re sending. So, I believe further negotiation is needed…”Prof John Gatsi
Touching on whether Eurbond holders will succumb and accept the 30%-40% haircut propositon by government, Prof Gatsi revealed that the whole issue about debt exchange programme is based on the fact that the creditor must decide what should happen.
He indicated that government needs to appeal to the conscience of the creditor community to accept its proposition.
“So, I believe it’s going to be a discussion and negotiation that will come to some agreement at a point. But the point is for an external creditor, especially to accept that I want to lose 40% of my principal and lose 5% of my interest. That creditor should be convinced that indeed, the government is not actually in position to pay the debt.
“Then, if the debt is not paid, which one is the best for the creditor? So, by that discussion, maybe a middle way will be found for an agreement.”Prof John Gatsi
Reaching consensus with Eurobond holders
Furthermore, Prof Gatsi iterated that although government may have its target, such targets cannot be imposed on the creditor.
He noted that the intention of the government may also be to save the currency by ensuring that the amount of money it has to pay to the creditors is reduced to give some respite to the currency, however, those targets are not “legally binding and not the conclusion”.
Meanwhile Prof Gatsi emphasized that it’s too early for government to also talk about extension of IMF programme, because “we are barely thinking about the second tranche in the first year”.
He underscored that government should be focusing on how it will be able to achieve all the targets on the programme.
“When we get to the tail end and we see that we are not achieving some of the target and extension of the programme will help us achieve that, then we can talk about extension…”Prof John Gatsi
Moreover, Prof Gatsi expressed the need for discussions on the importance of growth and how to bring back productivity. He revealed that in conducting debt sustainability analysis, one of the fiscal indicators is exports, which government must focus on.
“So, we will need to be working towards how we can expand our export base, how we can get into new destinations with our exports to be able to moderate the external fiscal vulnerabilities…”Prof John Gatsi