Economist, Prof Lord Mensah, has expressed disappointment in the minimal impact of the Domestic Debt Exchange Progamme (DDEP) on government’s expenditure.

According to him, government went into the debt exchange for a purpose to reduce its debt burden and then also find a way to reduce interest rates in the economy.

He revealed that at the time when interest rates on government bonds were hovering around 21% to 22%, it was expected that when it completes the debt exchange, interest rates would reduce drastically, although that is not the case.

“… Now, if you look at the budget that was read for 2024, clearly, you could see that the debt exchange did not feed into the budget because in 2023, we’re looking at interest rates of around GH53 billion, which in 2024, we are projecting around GHC55 billion, taking into consideration foreign debt which has some kind of increment as a result of foreign exchange depreciation.
“Clearly, I was expecting that after a debt exchange, your interest payments will reduce drastically, we did not see that. So, effectively, the impact of the debt exchange on our expenditure is not being felt as expected…”
Prof Lord Mensah

Prof Mensah noted that Ghana is still in the horizon of having a yield curve, where short term interest rates turn out to be so high, and sometimes double or triple of the long-term interest rates.

He explained that government bonds that were restructured has seen liquidity become a problem because of reduction in investor confidence in government bonds.

“So, all investors are looking at short term instruments and government is also fueling it by reading budgets with high expenditure and huge budget deficit.”
Prof Lord Mensah

Government’s current deficit and its impact on budget

Furthermore, Prof Mensah highlighted that although the current budget deficit seems to be lower than the years prior, it is more or less a way of government “dribbling” Ghanaians with the numbers. He indicated that government had a budget deficit of about 5.8% going into 2024 which is way below what it targeted last year.

“In effect, it tells you that we’re being fiscally disciplined, we’re improving on our fiscal discipline, but that is just something to deceive us because we’ve raised revenue and we’ve raised our expenditure targets.
“So effectively, that 5.8% that we see is nothing and, in a way, it tells you that government wants to spend and any signal of spending when you have lost all your avenues of financing… it tells you that you should tone down your expenditure…”
Prof Lord Mensah

Moreover, Prof Mensah questioned the essence of the debt exchange especially if government is not having its debt payment reduced in the budget and is also not having interest rates reduced in the budget.

With this, he maintained that the debt exchange has not lived up to expectations after one year of implementation.

“I was expecting that the debt exchange would correct the yield curve… The reason why we are not seeing it is that government is always on the market looking for money and investor confidence in long term instruments have also gone down and as a result of that, the investor is always ready to invest in government’s short-term instruments…”
Prof Lord Mensah