A flurry of announcements this week was meant to signal that momentum was building towards a successful close of Ghana’s unorthodox domestic debt restructuring program (DDE). Banks, insurance firms and most capital market players have consented to revised terms for the orderly resolution of the country’s unsustainable domestic debt.

At a plush conference in the Ghanaian hinterlands, at a resort featuring Australian emus and llamas from Argentina, the Finance Minister had a literal spring in his step as he mounted the podium to praise the government’s commitment to “African prosperity”.

All this flourish might suggest the beginning of the end of the country’s most debilitating fiscal crisis in recent memory. Considering analyst unanimity about how harsh the Ghanaian DDE has been for domestic savers and investors, it is perhaps not too difficult to understand why the mere fact of some traction is enough to lift government’s spirits. Using the framework of its own advisors, Lazard, the government’s DDE offer definitely merits the investor-unfriendly tag.

And yet, here we are, on the verge of closure. A sober assessment of the situation, as I hope to explain in a second, would however recall Churchill’s famous statement in 1942 after the Allies blocked a massive Nazi incursion into Egypt and secured the vast oil fields of the Gulf in one of the most dramatic turns of World War II:

“It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”

The deals agreed between Ghana’s Finance Ministry and the key financial market players, welcome relief from the stress and anxiety of recent weeks though they are, are significantly caveated.

In addition to the government revising its earlier stance of paying no interest on bonds this year and paying just 5% interest next year, it will instead pay 5% interest in 2023 and an effective rate of 9% (down from the roughly 19% weighted average rate on the old bonds) for the remainder of the term of the new bonds. Significantly, consenting domestic creditors are not getting a concession on the extended maturity of the reprofiled instruments, a major contributor to the Net Present Value (NPV) losses estimated by analysts.

To understand the provisionality of the agreements reached, one needs to carefully read the latest announcement, the one announcing a deal between the capital market operators (GSIA) and the Finance Ministry.

Just like the banks and insurance firms, the deal was brokered on the back of a promise by the government to set up a $1 billion Financial Stability Fund (FSF) to cushion any industry player that finds its solvency or liquidity threatened following the restructuring exercise.

As analysis of similar structures proposed for the European Union, and used in the Greek and Jamaican debt restructuring episodes, attests, a loan-based FSF is indeed the appropriate mechanism to use in these kinds of situations.

The only problem is that the design of the proposed Ghanaian version of an FSF is entirely in the heads of mandarins at the Finance Ministry. So far, they have studiously refused to share any details about the interest rate, maximum term, collateral requirements, eligibility criteria, or, indeed, any of the major features one needs to know to properly asses a Fund of this nature.

At one point the Finance Minister even appeared to suggest that the Fund was for mere show because the Jamaican version ended up redundant. He ignored the Greek example, in which a decade after it was set up, the Greek FSF is still dealing with the lingering effects of the bank bailouts partially attributed to the country’s debt saga.

Worse still, there is no money as yet for the Ghana FSF. The government says it has approached the World Bank to cover 30% of the costs of the FSF. The World Bank operates within its strategic plan for Ghana. Making additional resources available is contingent on satisfactory progress on a whole host of pending issues about already committed resources. The other expected funders of the program, like Germany’s KfW, have elaborate processes for agreeing to new programs and disbursing funds and, at any rate, would also like to see this whole FSF embedded in a detailed economic recovery strategy, of which none has been forthcoming from the government.

In short, the FSF is pretty much conceptual at this stage. It is thus not clear whether the financial sector players expect incorporation of language concerning the FSF into an amended debt exchange prospectus. The answer will be interesting come Tuesday, the 31st of January, the deadline of the DDE.

On the GSIA front, the caveats are more striking. A good chunk of the holdings of these capital market operators are in Collective Investment Schemes (like mutual funds and unit trusts). The chains of exposure are quite complex, entangling some corporate treasuries as well as individuals. For example, the country’s fintech industry parks some assets using these and other bank custodianship arrangements. Under the terms of the provisional agreement with GSIA, government bonds owned by the Collective Investment Schemes (CIS), regardless of ultimate beneficial ownership, must be treated on the same terms as those owned by individual bondholders.

Any contingencies of the CIS kind imply that the creditor group concerned cannot sign a blanket DDE agreement on Tuesday. A revised document meeting legal muster must be prepared and reviewed before any prudent fund manager can proceed to sign.

But even if such agreements are signed in short order, they will still be subject to a fuller resolution of the caveated matters before actual immolation of the old bonds and issuance of the new bonds can proceed at the depository of the Ghana Fixed Income Market. It will be interesting how all this unfolds in the coming days, considering the government’s rush to have everything done and dusted in the first week of February.

And that is only in relation to the creditors signing on to the DDE. We can safely project that the vast majority of individual bondholders and offshore investors would not consent to the DDE by the 31st deadline. A significant number of corporate treasuries will also hold out. Taking that fact into account, and considering the earlier exemption of Pension Funds and the contingencies around the CIS holdings, one can also project a participation rate (on principal basis) in the DDE of about 65%, and debt service relief of less than 50% of the original expected amount.

A 65% participation rate would be the least impressive DDE performance in the world for a program that went to completion. It would certainly fall short of the government’s preferred target of 80%.

The underwhelming results of the exercise can be entirely traced to the highly unorthodox approach taken by the Finance Ministry to launch consultations only after the debt exchange had commenced instead of before as has been the case with most DDEs undertaken elsewhere over the course of this decade, most of which saw participation rates above 90%.

When the exercise commenced in early December, this author said the following about certain financial industry players in Ghana:

Not only are they few in number, and their client base predominantly middle-class, but the government also wields massive regulatory power over banks and funds and expects them to do as they are told.

True to form, the government’s approach so far has been to ram the DDE down their throat. It was only after humiliating setbacks that it changed tack midway and grudgingly tried to do some co-creation. It goes without saying that launching consultations much earlier and mobilising a national consensus behind the DDE would have resulted in a higher participation rate and more debt relief whilst also spreading the pain more optimally. But even so, a 65% participation rate is comfortably above the 60% this author considers necessary for the program to have minimal viability.

It is important, moreover, to bear in mind that the resources freed up by the DDE, holdouts and exemptions notwithstanding, sum up to a figure just below the government’s largest revenue lines like Corporate Income Tax, Oil & Gas and Personal Income Tax. The DDE’s expected debt relief amount is considerably larger than proceeds from trade, energy and communications taxes etc. The banks alone may be “sacrificing” income of 15 billion GHS to the benefit of the government’s purse. Imagine attempting to haul that kind of dough through financial sector taxation.

So, where does all this leave us?

First, given the significant variance from the initial debt relief expectations, analysts expect some delays in finalising the full contours of the ECF before presentation to the IMF Board, likely straining the relationship between the IMF and the Finance Ministry. The government’s preferred timeline of IMF Board approval of March 2023 looks overly aggressive at this stage. In particular, earlier contentions by analysts that the fiscal consolidation component of the upcoming ECF program isn’t credible will be thrust back into sharp relief. Finance Ministry mandarins should not wait till the last minute before reworking the expenditure spreadsheets.

The IMF may choose to overlook the fact that the original debt sustainability strategy needs to be fully overhauled in view of the lower than expected debt relief and still present a program where the government only makes fiscal tightening pledges to the Board for approval. But doing this could dash the government’s hopes of the IMF frontloading tranche 1 disbursement, amounting to about $1 billion, to shore up the country’s forex reserves. Ghana’s reserve position is under unprecedented pressure, with gross reserves dipping below $4 billion, from nearly $10 billion a year ago, without even accounting for some not so liquid items on the Bank of Ghana’s balance sheet.

The IMF may in turn argue that any such disbursement should happen after successful completion of the first review of the ECF program, perhaps about three months after Board approval. It is highly unlikely that the Finance Ministry will consent to any arrangement that delays forex injection.

Which is why some analysts are beginning to ponder a scenario where government brings forward deferred domestic debt restructuring plans. Because the current DDE only covers 68% of the primary domestic public debt and less than ~56% of total public sector liabilities, the government may be tempted to initiate additional restructuring exercises earlier than planned in pursuit of additional debt relief.

The recent episode of Cocobod forcing a rollover of maturing debt (after the giant parastatal failed to raise a new facility to refinance expensive bills and the Bank of Ghana refused to step in) offers a clear hint of the government’s posture. Given that the country’s credit rating is already at rock-bottom, few restraints on debt repudiation remain. Apart from treasury bills and Bank of Ghana’s liquidity management tools, like swaps, every public liability in Ghana today is fair game.

External investors, keenly observing all these developments, are unlikely to agree quickly to total moratoria on debt service, as is the government’s wish. Trying to play total hardball may protract discussions and interfere further with the IMF Board approval timeline. It will be helpful for the government to be strategic this time around unlike in the leadup to the IMF engagement last July. That time, Ghana literally had to make a mad dash to Washington after a desperate attempt to hustle dollars from all manner of institutions between April and June failed to turn up even a dime.

Since then, everything has been a mad rush. It would be tragic if the government dilly-dallies with the outstanding creditor concerns until mid-March by which time the country’s forex situation would be completely dire before scrambling to pursue options that were obvious from the start (like abandoning zero percent coupon in 2023 during the DDE standoff).

It would be foolhardy in these circumstances for economic actors, and indeed the general public, to begin acting as though Ghana is nearly out of the woods. The rising chorus of governance reforms and the push for fiscal discipline should now intensify and not abate. The partial success of the current DDE is a mere lull in a storm that is still gathering.

All eyes should firmly remain on the foredeck, on the crew steering the ship of state, and no voice should stay calm if signs of rudderless maneuvering emerge.

Will ChatGPT Transform International Development?

After the spectacular failure of a 10-year project launched in 1982 by the legendary Japanese government agency, MITI, to dominate the global artificial intelligence (AI) landscape by developing systems suited to processing knowledge (rather than just data) in a user-friendly way, the country tried another approach.

In 1998, six years into the successor initiative, dubbed Real World Computing Program (RWC), publisher Ed Rosenfeld reported on an exhibition in Tokyo where the new project’s outcomes were on display. The goal, according to project managers, was to create a system to enable:

“humans to communicate easily with computers …[by the] implementation and refinement of “natural and smooth” interfaces through talking, facial expressions, and gestures.”

Essentially upping the stakes on the earlier attempt. Unfortunately, RWC failed to charm, and soon slunk into oblivion. Japan’s 20-year AI domination strategy was nevertheless focused on two still-dominant narratives of the role of “thinking machines” in shaping our world. First, “expert systems” to solve human-defying problems and, second, “naturalistic interfaces” to make non-expert humans feel warm and fuzzy around a superior artificial intelligence. Some say that on both scores, ChatGPT has almost delivered.

ChatGPT’s triumphant launch thus resurrects the old dreams, debates and divisions that ensued when a political scientist called Herbert Simon, with no formal training in computing, helped set up a department at Carnegie Mellon University (then known as “Carnegie Tech”) that would become a pioneer in an early branch of practical AI called “expert systems”. In January of 1956, the year in which the Carnegie computing department was founded, Herbert stood before a class of wide-eyed students and proclaimed the invention of a “thinking machine”.

But Herbert’s interests were far from confined to the logical construct of computing devices. His interests were in “psychological environments” and how these could be programmed to optimise human organisation for social change. When eventually he was awarded the Nobel Prize, it would be for his contributions to ideas at the root of today’s behavioral economics (despite not having been a trained economist), such as the optimisation of decision-making under uncertainty and other knowledge constraints.

“Expert systems” were the culmination of these concepts. Envisaged as holding large volumes of structured information assembled by knowledge engineers after extensive interactions with human experts, they would still operate within real world problem-definition constraints. Through complex, yet programmable, heuristics, such machines would solve problems faster and better than humans. But

Eventually, other branches of AI emerged where the rules of reasoning and analysis emerged from the body of assembled knowledge (or data, to be more liberal) itself instead of a compact heuristics or rules engine. One particular version of this AI model called “Large Language Models” (LLMs) power ChatGPT.

LLMs take the “self-organising” concept to an extreme in the sense that massive increases in data scale appear to have a correspondingly massive effect on the AI system’s cognitive level, a marked departure from the original visions of Herbert and the other expert systems enthusiasts who believed that progress was in the direction of ever more sophisticated rules & heuristics engines.

What does all this mean for the future of knowledge-based social change? In the field of social innovation for development, where this author plies his trade, old conversations about how expert systems could turbocharge social and economic development have resurfaced.

In 1996, when US academic Sean Eom conducted a survey of expert systems in the literature, he found a field thoroughly dominated by business.

Most of these systems targeted repetitive operational procedures. But a small subset was in use by consultants who focused on strategic open-ended questions, such as one may encounter in economic and social development contexts.

As the 90s unfolded, potential synergies among strategic problem-solving, expert systems and international development frameworks ignited strong interest in Western agencies.

For example, a review by Dayo Forster in 1992 for a major Canadian Aid Agency in the health context was motivated by the prospect of “maximum productivity” in the face of the appalling scarcity of resources in the developing world. Health has always been of great interest in the AI-for-Development community because of the importance of precise knowledge-based decisions, both at the public health level (example: what is the right interval between vaccine doses?) and individual health level (is this drug right for this woman given her or her family history?) For this reason, knowledge-enabled decision-makers make most of the difference in outcomes.

Then as now the promise of cost-effective thinking machines filling in the massive vacuum of local expertise in fields such as health, education, agriculture and planning is the most tantalizing prospect. Consider the case, for instance, of Liberia, which has just 300 doctors at home for a population of 5.3 million (up from 25 at home in 2000 when the population was ~3 million). There are two psychiatrists, six ophthalmologists, eleven pediatricians, and zero – yes a grand zero – urologists. Imagine the good that can be done if an expert system or similar AI could boost the productivity of each of these specialists ten-fold.

Sadly, this first wave of optimism faded slowly until a new turn in AI, anchored on Natural Language Processing (the umbrella group to which LLMs belong), started to produce the kind of results now on display in ChatGPT. The traditional concepts of expert systems were seen as a dead-end, and a ferment of new directions bloomed. ChatGPT’s wild popularity in 2022 marks it as a potential dominant AI design format, despite machine learning’s wider installed base and committed investments.

Echoing the hopes of times past, a recent McKinsey report by the global consultancy claimed that “[t]hrough an analysis of about 160 AI social impact use cases,” they have “identified and characterized ten domains where adding AI to the solution mix could have large-scale social impact. These range across all 17 of the United Nations Sustainable Development Goals and could potentially help hundreds of millions of people worldwide.”

Until ChatGPT’s dramatic entry into the popular consciousness, investment commitments and revenue forecasts for AI heavily emphasised machine learning applications far more relevant for the Global North than the Global South.

ChatGPT’s “expert systems” – like behaviour in the perception of the lay public however now throws into sharp relief the prospect of low-cost NLP-powered general problem solving solutions, a kind of multipurpose social development consultancy in a box.

Prospects for Gambia, Liberia or Laos dramatically boosting human resource potential by deploying LLM-powered bots to social service frontlines are suddenly looking exciting again. Or are they?

Below I present a very condensed argument of why ChatGPT and other big-data driven models, monumental technological feats though they are, lack some vital attributes to make much of a difference soon. These concerns are not addressed by improvements in accuracy and efficiency expected in GPT-4 or later models because they go to the very roots of the philosophy behind such tools. They can only be solved in the technology governance layer.

Expert systems are heavily weighted

LLMs and similar big data-driven systems are about statistical averages. They take snapshots of internet-scale caches of data and then make safe bets as to the most likely answer to a query. The best experts are, however, top-notch for the very reason that they generate insights in the tails of the distribution. It is still too risky to introduce strong-weighting in LLMs to generate positive biases since the goal is to minimize bias in general.

Knowledge Engineering is tough

For any complex assignment, a schema of multiple parts involving multiple strands of enquiry produces the most sophisticated outcome. One needs to orchestrate multiple prompts to get ChatGPT to generate the right sequence of answers and then piece them together. This requires higher order, not lower order, cognition. Costs thus shift from expensive specialists to expensive generalists.

For example, a detailed review of ChatGPT’s recent performance on a Wharton MBA test emphasised the critical importance of “hints” from a human expert in refining the bot’s responses. As will be shown later such “prompt loops” cannot be woven unless the expert has strong generalist competence in the area of inquiry.

Factual Precision is less useful than Contextual Validity

Whilst there is a lot of general information available on the internet and from other open sources, a great deal of the world’s contextual insights are still in proprietary databases and in people’s heads. LLMs need extensive integrations to access true insights into most socioeconomically important phenomena. In a 2019 working paper, this author broke down the generic structure of modern computing systems into “data”, “algorithms” and “integrations”, and explained why integrations are the real driver of value. Yet, integrations also limit quality data growth in LLMs like ChatGPT and introduce risks whose mitigations constrain automation efficiency.

Much has been made of ChatGPT successfully passing exams set for advanced professionals such as medical license assessments. In actual fact, a standardised exam taken under invigilated conditions is the worst example to use in the analysis of real-world expertise. First, exams of that nature are based on a syllabus and wrong and right are based on well defined marking schemes designed to approximate statistical yardsticks of performance. It is considerably easier to span the universe of knowledge required to pass an exam and to reproduce “standard quality” answers than it is to operate within the constraints of a turbulent environment such as field hospital in Liberia. Whilst we use such exams to screen humans for similar jobs, the confidence arise from implicit assurances of their social adaptability in knowledge application.

Proprietary data is expensive

To address the proprietary data and tacit knowledge issues, LLMs will have to compete aggressively for integrations, raising their costs of deployment and maintenance, and thus lowering accessibility for the poor. Already, several Big Data-AI companies like Stable Diffusion are facing lawsuits for trying to externalize their costs. And ChatGPT has been excoriated for using sweatshops in Africa. The politics of data mining will constantly outstrip the capacity of individual companies to manage, just as is the case with natural resources.

As individual corporations get better at building their own unique knowledge-bases and at sourcing algorithms to address internal issues, the edge of internal-scale utility operators like OpenAI (owners of ChatGPT) will start to erode and the real opportunity will shift to enterprise consulting in a balkanised AI business environment. It bears mentioning that becoming a viable competitor to Google’s LLMs in the general knowledge search category is not a socioeconomically transformative step for ChatGPT as the real gap is in specialised knowledge brokerage.

A new kind of “naturalistic fallacy”

Many of the most genuine knowledge breakthroughs are highly counterintuitive. Some clash with contemporary human sensibilities. The more a bot is made contemporaneously human the lower its ability to shift cognitive boundaries. This is hugely important when a bot must make predictions and projections based on judgement-soundness rather than mere factual-accuracy.

Confusion in this area caused Soviet and Chinese theoretical marxists to declare AI a reactionary science well into the 70s. Whilst the Cuban revolutionaries saw only industrial automation and thus embraced AI (popular then as “cybernetics”), the more ideological marxists understood the challenge it posed to the idea of human transformation itself, on which perfected communism will depend. In that sense truly groundbreaking LLMs would have to be more unfettered in their probing of human sensibilities than current political ethical boundaries can contain.

Experiment

To practicalise the above analysis, the author engaged ChatGPT to discuss the prospect of decentralized finance enabling financial inclusion in the developing world. The argument’s vindication is self-evident but a few annotations have been interspersed with the screenshots. The short version is that statistically summarised knowledge drawn from open internet resources is constrained to mimic garden-variety coffee-break conversation rather than serious expert handling of judgement-heavy, high-stakes, decision-making.

Friday, 13th January 2023. Jubilee House, Ghana’s presidential palace. In attendance: the movers and shakers of public and commercial finance in the country.

Arrayed on one side was the government, led by the Vice President, in his capacity as “Head of the Economic Management Team” (EMT). On the other side was a motley crew of finance industry representatives, from the insurance, securities, banking and related industries. The agenda: Ghana’s tottering domestic debt restructuring exercise.

Five and a half weeks since the Finance Minister announced a move to default on Ghana’s domestic debt by persuading creditors to exchange their current bonds for new, significantly lower value, versions, the program seemed hopelessly stuck. The EMT’s goal for the meeting was thus to break the logjam. Why, though, is the program stuck?

In an earlier essay, we catalogued a list of defects in Ghana’s debt restructuring/exchange model, but the focus was mainly on broad strategic issues. At the Friday meeting in Jubilee House, tactical considerations took center-stage.

When on 5th December the government announced its offer to domestic creditors to turn in their current bonds and come for new ones guaranteed to lose them billions of Ghana Cedis (GHS), it gave them two weeks to comply. No serious prior negotiations had taken place. Nothing had been agreed in principle, not to talk of anything approaching even the most high-level consensus among the biggest creditors on general terms.

Near as we can tell, no government on Earth has succeeded in pulling off such a fast turnaround as Ghana tried to achieve last December. Even the fastest restructurings, such as those of Ecuador and Argentina, have in recent decades typically taken between four and five months of consultations before the formal launch of the actual exchange process, which is then treated as a formality.

Ghana’s style is more reminiscent of Argentina’s 2020 default, which initially consisted of a series of unilateral offers and amendments in a take it or leave it fashion. At every round, bondholders rejected the offer and subsequent amendment. Not even the intervention of Pope Francis made a difference until the right set of concessions allowed the main bondholder groups to consent.

Seeing as Ghana’s main advisor, Lazard Freres, has advised Ecuador too, the likelihood of a protracted stalemate in the absence of concessions should have been clear to the government side from the outset, so why have things panned out like Argentina’s?

It would appear that Ghana’s Finance Ministry has been counting on a “divide and conquer” strategy. It has so far been nonchalant about calls to support the formation of a joint creditors’ negotiating group. Given the costs involved in obtaining top-notch legal and financial modelling advice, creditor coordination has long been a daunting prospect in sovereign debt restructurings.

The government apparently believes in keeping the creditor front fragmented and uncoordinated as a way of minimising resistance. Unfortunately, such “divide and conquer” strategies are only effective if the government could also make differentiated offers to different creditor groups or engage in selective defaults of specific classes of bonds. Neither option is open to the government in Ghana’s context, thus rendering a divide-and-conquer approach a complete waste of everyone’s time.

That fact was amply evident on Friday when the different industry groups converged to confer with the EMT. It soon became apparent to everyone in the room that the government, as of that morning, had zero concrete commitment from any major creditor group to the debt exchange.

The securities industry representatives (the folks running the mutual funds, independent brokerages and various collective investment schemes) said they were willing to step up and accept the latest amended offer if the government will countersign on a covenant promising to upgrade their settlement to match any better terms eventually given to any other group. A point which illustrates the futility of the divide-and-conquer strategy: you get an assortment of contingent proposals from every creditor group playing a “wait and see” game. The game theory analog is the famous stag and rabbit/hare hunt where agents attempt to balance the benefits of individual moves with the higher payoffs of social cooperation.

Attempts by the Finance Ministry to solicit respect for the January 16th deadline went nowhere. Obviously, different creditor groups with their separate sets of concerns can obviously not resolve them at such a meeting when no prior efforts had been made to coordinate their claims and issues into a uniform negotiating position. Said differently, it is pointless for the government to encourage separate negotiations and yet when faced with a time crunch try and push for a quick joint resolution in a common forum.

Unsurprisingly, therefore, the Finance Minister’s offer for the creditor groups to accept the finality of the 16th January deadline and be granted a few additional days to tidy up the paperwork failed to persuade.

What is fascinating about all this is how respectful the creditor groups have been despite the casual treatment they have received to date. As anticipated from the outset, banks and “savings & loans” companies are the most susceptible to the quiet force of the government’s enormous regulatory power. So, at this point, all that separates the banks and the government from a deal are five relatively surmountable blocks:

• The banks want the government to get concrete on the “regulatory forbearance” it has been promising so far by agreeing to a discount rate for valuing bonds as part of capital determination. The banks want a lower discount rate to reduce the valuation gap between the new and old bonds. They are inclining towards 7.5% (contingent on further engagement with the Institute of Chartered Accountants in Ghana). The Bank of Ghana insists on 12%. The choice of discount rate or factor will establish the present value of the bonds the government is tendering to replace the old bonds.
• Linked to the above are disagreements over the “expected credit losses” from the impairment of bank assets (in the form of government securities in this case, not loans or advances) being occasioned by the proposed debt exchange.
• Obviously, until the government and the banks can agree on how to quantify losses as a result of the exchange they cannot move on to settle the issue of tangible effects on the bank’s income statements and balance sheets. As far as the banks are concerned, the expected financial impacts are: pretax losses of $1.2 billion, liquidity shortfalls of $1.6 billion, and a capital shortfall of $1.3 billion (using retail exchange rate). Essentially, massive hits to the bottomline with troubling implications for their capacity to keep issuing credit, maintaining jobs and investing in financial infrastructure. Worst-hit financial institutions may have to let 40% of their workers go. 17 of the 23 licensed “deposit money banks” will see their capital adequacy ratio fall below the regulatory minimum. And 9 of them will experience negative equity. In short, the government is refusing to acknowledge the full impact of the debt exchange on the financial sector; yet, without convergence on this point countermeasures cannot be agreed.
• The banks cannot countenance the stepped-up coupon (interest rate) model for the new bonds with its zero payment (and no deferral) payout structure for 2023. The banks require a simple uniform structure of equal payments across the life of each instrument. Furthermore, this uniform rate is, in their view, best set around 12.5% per annum.
• Government’s new bond offering comes with a well known Trojan Horse: legal clauses that would make it easier for it to vary the terms of the bonds in the future. The banks want these clauses expunged.

Beyond these 5 main demands, there are a number of other areas where confusion still prevails. One such is the treatment of the bonds denominated in US dollars, whose status remain uncertain. The second is the vaunted “Financial Stability Fund” (FSF).

The government has tried to bloviate around these matters, and made many vague assurances of monies committed by the World Bank to cover 30% of the $1 billion fund size. Sources at the World Bank suggest various contingencies must first be met before any such disbursement will happen. Meanwhile, the other claimed sources of the rest of the money: the Germans (KfW), the Paris Club of rich western nations, and the African Development Bank have so far not commenced any formal negotiation of any agreement to offer any cash to this facility. Pressed to the wall, Ministers responded airily that the debt exchange cannot be held hostage by such matters and that banks should first sign up before being told even basic things such as what interest rate borrowing from the facility would attract. The industry pushed back on eligibility criteria.

At this point, the Finance Minister tried another tact. Why don’t the banks publicly announce their consent to the debt exchange program and then request a date extension to hammer out a few outstanding issues? Naturally, the bank representatives demurred. They weren’t born yesterday. They insisted on an agreement on the key outstanding issues first.

At which point, Lazard Freres barged in and sought to gaslight the eminent company. An extension can’t be contemplated without wrecking the credibility of the whole debt exchange program and furthermore threatening the IMF deal. After much handwaving, they calmed down, loosened their tie, sipped some seltzer, and grudgingly faced the reality of a no-deal on Monday the 16th of January.

All of the above is to say, the government went into what was billed as a crunch meeting to close a deal to allow an announcement one working day away when it had made very little effort to grapple with these very compact issues for two weeks now. As has been repeatedly mentioned on these pages, the government’s job has been far easier than in many comparable national contexts in similar circumstances.

Till date, domestic institutional creditors have accepted the principle of significant losses. They have also not demanded several of the concessions that elsewhere others have extracted, like negative pledge clauses, buyback transparency terms, future upside sharing and other contingent windfalls, enhanced protection etc. They even seem to have backed down on initial requests for the government, in its issuer capacity, to underwrite the legal and other advisory service costs of creditor coordination. They seem to be operating with far less legal ammo than should be the case in a situation with such large amounts of money involved. And some of them, especially the mutual funds and asset managers, are even willing to sign up provided they are granted “pari passu” assurances. And yet the government has still failed to clinch a deal.

The recalcitrance of the government about deepening consultations and accelerating coordination among creditors is completely bizarre considering its lack of options should holdouts remain above 40%. Should an industry group collectively refuse to sign the exchange papers, all the punitive measures at the disposal of the government become useless as it cannot crush a whole industry. And any attempt to default on the holdings of any significantly large group risk setting off contagion that can ruin entire sectors without sparing those who consented to the exchange.

The meeting with the institutional shareholders thus ended with a commitment to engage further through correspondence this week. It is safe to say that the government will not be able to announce any program success rate tomorrow because frankly at this stage it has no firm commitments from any major creditor group.

After the institutional creditor representatives departed, the government side retired to deliberate on the now politically explosive situation of mobilising individual bondholders.

In a previous essay, IMANI raised a caution about individual bondholders as follows:

Whilst households and individuals hold just about 13% of government debt, they are also the most politically significant group. They are the ones most likely to bring class action suits against the government and mount political agitation to stop the process as they are not as exposed to government pressure to the same extent as the banks, institutional funds and treasury departments of large companies.

From all indications, the Vice President and key allies of his in government recognises the scale of the political blowback that reneging on the promise not to add individuals and households to the debt exchange program has triggered. Whilst the Finance Minister is at this stage focused purely on securing enough liquidity relief so that his already fragile fiscal program for 2023 does not fall apart, and, even more vitally, the IMF program is not derailed, the Vice President has a somewhat more strategic perspective in mind. Unsurprisingly, the mood in the government is tilted towards restoring the exemptions for individual bondholders, notwithstanding the discomfort of the Finance Minister and his technical advisors.

As we have frequently said on this site, the Finance Ministry’s lack of political economy savvy, now compounded by overdependence on foreign technical advisors with zero awareness of how social consensus is achieved in Ghana, is a major threat to both the debt restructuring effort and the IMF program.

It is actually a miracle that both programs are still technically on track and are likely to survive in highly constrained forms. The total amount of liquidity relief likely to be generated by the debt exchange program is now estimated to be lower than 40% of what the government set out to achieve. To preserve the credibility of the IMF program, additional fiscal consolidation in the form of expenditure cuts is now inevitable. Even after exempting pension funds and contemplating re-exempting individual bondholders, the government still faces wildcat litigation risk because offshore investors who hold local bonds are unwilling to take the deal on offer.

The adamant refusal of the government to mobilise national sentiment behind its economic recovery strategy and to build a broad social and bipartisan consensus behind the measures has led to highly suboptimal outcomes guaranteeing a significant delay in Ghana’s effort to exit the country’s biggest economic crisis in 40 years.

The President of Ghana has assured the nation that the controversial “National Cathedral” will be ready by March 6th, 2024. That is to say, barely a year away.

This is of course an engineering impossibility, unless the idea is to launch an uncompleted project. The National Cathedral is not just the cathedral; it also includes a bible museum and extensive “biblical gardens”, among other structures. In fact, the proponents of the cathedral have promised no ordinary museum but the “biggest bible museum in the world“.

There is an obvious reason why bible museums aren’t all that common: artifacts and antiquities to adorn them are fiendishly expensive, at least if genuine, and almost impossible to legally obtain from the Holy Land. The current principal consultant to the National Cathedral, Cary Summers, used to run the US-based Museum of the Bible, which has admitted to obtaining fraudulent, illegal, and even fake bible antiquities.

To secure enough genuine antiquities for the museum, build out the complex engineering required for a world-class museum environment, and then move on to the equally complex task of landscaping a garden and planting exotic plants from a faraway clime etc., would definitely take more than one year. We do not even need to delve into the labyrinthine network of laws and regulations governing the international movement of antiquities.

To give readers a rough hint, here is a super-basic 3-year development timeline for a typical museum borrowed from Mark Walhimer, Managing Partner of consultancy, Museum Planning LLC.

Suffice it to say that as at this morning, the vast majority of these activities have not even commenced for the bible museum.

Some readers may wonder whether the cathedral project could be viewed as modular and thus launchable next year so long as the primary building (let’s call it “the cathedral proper”) itself is complete, even if the museum and gardens hadn’t commenced by then. No such luck. The cathedral proper is also embroiled in complex legal squabbles and stalemates.

To start off, land (about 90 plots), with all structures on it demolished, in the prime Ridge district of Accra worth over three hundred million dollars has already been committed to the project by the State. But the government has refused to settle residual claims by some private real estate companies leading to litigation.

Furthermore, the original $100 million budget for the cathedral proper was eventually bloated to over $400 million after extensive negotiations with the primary contractor, Rizzani de Eccher, acting through a local joint venture entity, Ribade. The cost escalation came about because multiple projects (ranging from hospitals, shopping complexes and schools to art galleries and the multi-level 5000-seat auditorium) were bundled up for strategic reasons (some would say for crony-commercial reasons). The resulting complexity has led to significant project development challenges and conflicts among various contractors. It is now common knowledge that the main contractors have left the site and would require hefty “mobilisation” payments to return.

In short, not only is a timeline of March 6th 2024 unrealistic, there is now a growing likelihood that the project may not even be completed in the life of the current administration. In such an event, what should the next government do?

Not to put too fine a point on it, the current site of the National Cathedral is an eyesore.

The site cannot be left as it presently is. So the new administration would have a clear choice to make: complete the project based on the original concept of a frighteningly expensive “national cathedral” and a fantastical bible museum (with all the murkiness surrounding the antiquity sourcing strategy) or redeem it completely.

Considered carefully, the choice is not that hard. The current government adamantly refused to invest in a national bipartisan consensus behind the project. Consistent with its general posture since coming into office it has done everything to polarise sentiments regarding its strategy. There is thus no groundswell of positive affection for the original concept, though many Christians are generally well disposed to some kind of official national recognition for the country’s largest faith community. All said therefore, the new administration would not feel bound by the current commitments.

Worse, the national cathedral concept is now mired in perpetual controversy. Right from the outset, besides failure to mobilise nationalist sentiment, narrow profit-making considerations took centre-stage. Instead of using national design contests in the most transparent fashion to appoint the various designers, architects, project administrators, marketers, engineering firms etc., the government opted for shady, opaque, and highly nepotistic sole-sourcing and underhand procurement arrangements, whereby proximity to the presidential family and its acolytes became the main calling card for all those profiting from the scheme.

Not a week passes by without hearing of some profiteering twist to the already sorry saga. The latest is a murky situation involving the Secretary to the National Cathedral.

It has now come to light that a pastor in one of the churches owned by the said Secretary, a clergyman, is, together with his wife and another related party, the owners of a business, JNS Talent Centre, which from 2017 to 2020 was only a small daycare center for young children. As the World Bank poured funding into Ghana as part of the COVID-19 response, all manner of small businesses with links to officialdom managed to transform themselves into contractors and stake a claim to their share of the largesse. Thus it was that in the last week of August 2021, the Controller & Accountant General paid 3.5 million Ghana Cedis (GHS) into the account of JNS. JNS promptly, just three days later, granted a “loan” to the National Cathedral Secretariat upon receiving a letter from the latter requesting funds on August 26th. That loan, granted within 24 hours, was then ostensibly “paid back” to JNS later. The sheer incongruity of the conducts, contexts, coincidences and contracts involved here besides, there is an untidiness about a religious project becoming embroiled in such murky related-party commercial transactions.

A similar confusion involves the Nehemiah Group, which is ostensibly a contractor to the National Cathedral, even though its founder, Cary Summers, is also a trusted, independent, advisor. Considering that the National Cathedral secretariat at formation was merely an extension of the Presidency, it is unclear when the Nehemiah Group began billing the country. But it is now known that it has succeeded in extracting ~$6 million (at prevailing exchange rates) from Ghana under the pretext of guiding the country in sourcing antiquities and funding and for creating a “concept” for the museum. Apparently, Ghana owes it even more money.

None of these payments and others amounting to nearly $60 million were for services tendered openly, transparently and above board in a manner befitting the high ethical standards of a religious undertaking of this magnitude. In fact, leaks and briefings suggest even more underhand commercial transactions are yet to come to public light.

Having become so mired in a perception of venality and poor governance, it would take a momentous effort to retrieve the reputation of the National Cathedral from its current level, the earnest efforts of some of the eminent clergy promoting it nonetheless. In some ways, by failing to publicly denounce these practices and actively seek to demonstrate true openness, accountability, inclusivity and tolerance for dissenting views, the proponents of the cathedral have lost some of the gravitas they could have lent to the project.

The next government must thus seek a completely clean break from the past. It must gingerly go over the careful policy analysis of IMANI. And it must solicit views from far and near.

If the new administration does all this, it would discover a need to repurpose the precious real estate commandeered by the current government for what has become a thoroughly discredited initiative. It must, in these circumstances, convert the site to a National Civic Center.

The Christian faith can definitely be given prominent recognition in the revamped blueprint. The Chaplaincy of the Armed Forces of Ghana could be invited to manage a smaller, more elegant, ecumenical Christian site at the center (by the way, the very idea of a “non-denominational cathedral” is an ecclesiastical absurdity since Ghana is not an episcopal country and thus can have neither a “national bishop” nor a “national cathedral”). Such an edifice could be constructed along the lines of Nigeria’s, which cost less than $30 million and was fully funded by the faithful, not the state. A multimedia center charting the translation of the bible into native languages, which paved the way for the indigenisation of Christianity in Ghana, would also be useful to both the faith and scholarly community.

Other religions could be recognised as well. Adherents of Ghana’s marginalised native faiths and the various Islamic traditions could be engaged to contribute monuments celebrating their own contributions to the country.

But there is much that goes beyond religion in defining the national spirit of Ghana. There are patriots who sacrificed everything for its sake. Artistic giants whose feats emblazon the national essence. From high-life to azonto, and the Allotey formalism to Kofi Annan’s diplomatic legacy, there are many strands of the finest fabric of Ghanaian nationhood that has yet to be woven. They can all have a place at a well-designed National Civic Center.

The National Cathedral episode is, taking all the foregoing into account, a very expensive lesson. Despite years of paying lip service to patriotism, Ghanaian leaders at the least opportunity elevate parochial interests above true national interest and consensus, damaging the country and all its citizens in the process.

If by January 7th 2025, the cathedral remains far from done, the next government may well get the opportunity to cure this national disease by converting the sad symbol of a debased national monument into something truly inclusive, noble, majestic and evocative of what Ghana can be at its best.