Debt exchange program and stabilization fund: some analysis — Prof. John Gartchie Gatsi

Feature Article Debt exchange program and stabilization fund: some analysis — Prof. John Gartchie Gatsi

The debt exchange program is anticipated to create liquidity challenges for some banks and if possible erode capital and expose the banks to regulatory demands. There will be new treatments of impairment and expected credit losses within the framework of international financial reporting standards.

There is the setting up of stabilization fund to help support liquidity challenges of the banks that qualify to take advantage. We know, that liquidity support is provided for in Act 930 at the prevailing monetary policy rate or some other interest rate determined by the regulator. While the liquidity support is a cost to the universal banks, it is interest income for the bank of Ghana.

Will the GHS15billion stabilization fund attract interest? Here is the moral question, the government has borrowed excessively from banks through the issuance of bonds and starved the private sector of the needed capital from banks. The banks expect interest income. The interest income is not available in 2023 and is distorted in 2024 through to the new maturity. The problem anticipated for the banks for the liquifying of the banks can be supported by the banks taking loans from a certain stabilization fund. Hmmmmmm. You are a creditor and your interest and maturity have been elongated but when the banks are facing liquidity challenges as a result of the debt exchange program, the banks will take a loan and the banks must pay. From creditor to a debtor on the account that the debt exchange program disrupts your liquidity then you become a borrower to solve the problem created by your debtor.