About 94% of the ¢3.9 billion Tier 2 pension contributions placed in government securities may be affected by a probable Debt Restructuring Programme.
A debt restructuring will mean the yield-to-maturity of government bonds and bills will be extended or better still the ‘haircut’ policy will be enforced. This will potentially affect the return on investments.
In financial markets, a haircut refers to a reduction applied to the value of an asset. For example, if an asset – such as holdings of a particular government bond – is worth ¢1 million but is given a haircut of 20%, it means it is treated as though it has a value of only ¢100,000.
Joy Business understands that the government will have to restructure the country’s debt as a pre-condition for an economic programme from the International Monetary Fund.
Should this happen, the maturing periods of these securities will be affected.
Almost the entire pension funds of Tier 2 contributors have been invested in the Government of Ghana instruments, particularly bonds. This is because government securities are classified essentially as risk-free.
However, the current fiscal challenges facing the economy, particularly ballooning debt and unsustainable interest payments raise some concerns.
The government yesterday announced a 5-Member Consultative Committee chaired by astute banker, Albert Essien, to lead the financial sector stakeholder engagements to reach a deal with the IMF in Ghana’s debt restructuring.
The group will examine views from financial sector players to deal with issues in the financial sector before reaching a deal with the IMF for an economic programme.
Joy Business is learning that the group is different from the credit committee that will also engaged the Fund.