Economist, Prof Lord Mensah, has expressed the need for government to abort plans of regularizing its domestic debt exchange.
According to him, the practice of prolonging debt exchange will not augur well for the country’s economic health. He revealed that Domestic Debt Exchanges are not used to manage the economy.
“So, we should note that debt exchange can reduce investor confidence and as a result of that, we cannot operationalize and regularize it every now and then… Those waves of debt exchange must cease…
“When you do that, you try to hold up certain uncertainty in the public financial space and we all know very well that without the flow of finance to and from the government instrument, this government can run down. So, we don’t prolong the exchange, we do it once and then you gradually win back the investor confidence over time…”Prof Lord Mensah
Describing what he termed as finance minister, Ken Ofori-Atta’s decision to “regularize” debt exchange, Prof Mensah stated that it is not “normal”. He insisted that government cannot “use debt exchange as a budget operation”.
“The reason why I’m saying this is that, if you look at globally, all debt exchanges that have happened, they don’t go to the market more than twice… Debt exchange, in as much as it has positive impact on the economy, there are some negative aspects to the economy as well…”Prof Lord Mensah
Government urged to carry out expenditure cuts
Furthermore, Prof Mensah iterated that going through with such consistent debt exchange may affect investor confidence in government’s long-term bond. To this end, he questioned whether the finance minister’s swapping of the old bond with the new one has yielded any “trading”.
“Apart from the financial institutions who are dealing with long-term obligations, I don’t think individuals and businesses are even interested in those long-term bonds.”Prof Lord Mensah
Moreover, Prof Lord criticized government on the way treasury rate bills are going up relative to the long-term instrument that are still low. With this, he revealed that government cannot manage the economy in such manner.
Additionally, he elaborated that economies are not managed under “inverted yield curve – a situation where a long-term instrument is having lower rate than short-term instrument”. This, he indicated, is “never done anywhere”.
“We’ve been in that situation before but as of that time, Seth Terkper who was the finance minister, coined a term called smart borrow – where it saw the yield curve was inverted and as a result of that there was pressure on the economy and then he started looking at long term investment from elsewhere.
“Unfortunately for this government, what is happening is that the government has been plucked from the international market so external inflow has been a problem. So, the only option available is to cut down your expenditure…”Prof Lord Mensah
Commenting on whether government has done enough on its part to sacrifice for the nation as it demands of bondholders, Prof Mensah stated that he has heard little on government’s scrapping of 30% emolument for Article 71 holders.
Clearly, he explained that Ghanaians have not seen how much government has saved on that decision. He further emphasized that government has equally not considered reducing the “big elephant” on the expenditure side of the balance sheet.
“The bigger elephant on the expenditure side that government is supposed to look at, I believe for political reasons, is not looking at that. One of them is the Agenda 111 promise they want to deliver to Ghanaians, and some of them being duplications of projects in certain enclave…”Prof Lord Mensah