Readers of this site would be aware of a joint investigation by IMANI Center for Policy & Education (IMANI) and the Africa Center for Energy Policy (ACEP) into a sweetheart deal between GNPC, Ghana’s national oil company, and Genser, a US-based Ghanaian-owned company that recently announced that it has raised $425 million to expand its gas-to-power facilities in Ghana.

Image credit: Adobe

For those readers not abreast with the key facts, here is a quick recap.

Context of the Gas-to-Power Market in Ghana

Ghana has three main gas fields, all offshore, from which natural gas is pumped through an undersea pipeline to the shore. From the offshore receiving facilities, gas is distributed, in principle, according to the country’s Gas Masterplan.

The gas is produced by private oil and gas companies of the likes of Tullow, Eni, Vitol and Kosmos and aggregated by GNPC, in its capacity as Ghana’s main upstream state interest operator, for sale to other entities. Ghana Gas is the primary wholesale buyer of the gas and the main processor. Currently, it is also the largest distribution infrastructure operator, though that role has been designated for state-owned BOST. BOST is unable to effectively invest in the pipeline complex required for it to play this distribution utility role due to financial constraints.

Source: Shafic Suleman (2020)

At every level of the value chain, there are regulators that are supposed to make sure that a level playing field exists; and that strict compliance with law and policy, observance of standards and the political and economic interests of the country and its citizens are the hallmarks of the country’s budding gas industry.

Source: Oxford Energy Institute

Clearly, either all these regulators are asleep or they are complicit in the brazen ongoing heist of public resources evident in the GNPC – Genser sweetheart deal.

So, who is Genser?

Genser is one of 15 main thermal power producers in Ghana. A “thermal power” producer uses fossil fuels like gas and crude oil to generate electricity for sale to customers. Unlike most power producers who sell the power through the GRIDCO-managed national grid, Genser locates its power plants close to its customers and transmits directly as an “embedded generation operator”. It is one of two main companies doing this in Ghana, the other being Trojan.

So why are we saying it has entered into a “sweetheart deal” with GNPC? Well, the charge is vindicated by the mindboggling pricing it succeeded in securing from the national oil company.

In 2020, it signed a deal to buy natural gas from GNPC at a cost of $2.79 per MMBTU. “MMBTU” is just a fancy unit used to measure gas flow in the gas industry.

This was after it had committed in 2018 to buy gas at $6.5 from Ghana Gas if it succeeds in being classified as an “strategic industrial consumer” and if not then at $7.29. When Ghana Gas tried in February 2019 to get the Energy Commission, a key regulator, to designate Genser as a strategic consumer and thus to justify the lower price, Energy Commission refused.

A year after the Energy Commission rejection of any discount arrangement for Genser, GNPC stepped into the fray with the $2.79 (per MMBTU) price deal, obviously at a steep discount from the regulated price then of $6.50. But that was not sweet enough. So, in July 2021, GNPC upped the ante and offered Genser a deal whereby it will further reduce the gas price to $1.72 if Genser built more pipelines that GNPC might in the future use to transport gas (thereby bypassing the Ghana Gas network).

ACEP and IMANI were scandalised by these revelations because even large energy producers and wholesale buyers of gas in Ghana do not get such deals, despite fuel being the biggest contributor to the cost of power businesses and households face in Ghana.

The biggest power producer in Ghana, VRA, for instance, attributes 60% of its total costs to fuel when breaking down the electricity prices it is allowed by the PURC (the main pricing regulator) to charge. Its cost of gas is the regulated price of $6.08 (changed to $5.99 by the regulator in 2022).

Source: Energy Commission of Ghana (2022)

Under what circumstances then can a smaller power producer with far less impact on the economy, without any of the social constraints faced by VRA to service poor and rich alike, get gas at a price that is roughly 1/4th what the principal public utility is charged?

Even the main wholesaler of gas in Ghana, Ghana Gas, which on-sells/retails to the power industry, gets its gas at $5.4. Due to rampant under-recoveries in the power sector (implicit subsidies imposed by the government, which it nevertheless refuses to pay), it struggles to get paid by the utilities and therefore rack up debts to the upstream suppliers.

Source: GNPC Accounting Data

GNPC’s own calculations suggest that securing gas costs it $7.9 per MMBTU. It has therefore tried to persuade the pricing regulator, PURC, to increase gas prices above the $5.99 the latter has set for the downstream power sector.

How can a commodity that has been averaging $8 per unit in recent times, and which the seller claims costs it $7.9 to produce, be sold at $2.79 or, even worse, prospectively at $1.72?

Source: Finanzen GmBH (2022)

GNPC’s Bogus Explanations

Following the ACEP-IMANI exposures, GNPC and the Energy Ministry went on the offensive this week. At an ongoing parliamentary enquiry, GNPC did it best to obfuscate the issues, and suggested all manner of reasons why Genser deserves to pay between 60% and 75% lower than virtually every other gas buyer in the energy industry.

First, it cited the fact that Genser is on the “industrial development tariff”, which at $4.20 per unit is lower than the regulated price (“weighted average cost of gas” – WACOG) set by the regulator.

Next, it insisted that Genser is one of a few companies that pays its bills on time and does not rack up arrears and thus deserves some back-patting.

Finally, and most importantly, it rolled out the Rolls-Royce of all justifications: Genser uses its own pipelines to transport the gas it buys and so deserves a rebate on that account alone. Even more vitally, Genser has given GNPC the right to use gas pipelines it is still building in the future to transport gas for free and thus deserves further discounts in what amounts to a barter trade.

None of these arguments hold water; some are plain lies.

The Sham “Industrial Development Tariff (IDT)”

As already pointed out, the Energy Commission rejected similar arguments about the role of Genser in 2019.

There is nothing exceptionally “industrial” about what Genser is doing. It is not facilitating manufacturing or doing manufacturing on its own, unlike other IDT beneficiaries. The agreements it has with GNPC and Ghana Gas do not impose any requirement for it to use the gas for industrial applications or purposes.

It virtually all the power it generates with the discounted-price gas to mining companies, which are in the “primary extraction” sector.

Genser’s list of Customers (July 2021)

It is merely undercutting other power producers, who could easily meet the demand of the mines, by buying gas for cheap. Recall that for gas power producers, raw gas is roughly 60% of their total costs. There is absolutely no strategic, policy or developmental reason for Ghana to discount gas prices for a commercial power producer to undercut its rivals in selling power to rich gold mines.

Companies that are focused strictly on delivering power to Ghana’s industrial parks, export processing zones, and manufacturing corridors do not get these sweetheart deals.

The Hollow Pipeline Argument

It is not correct, as being canvassed by GNPC, government and Genser PR agents that only Genser has invested in private pipelines for receipt and onward transmission of gas. Companies like Aksa, Trojan and Early Power have all gone through the necessary regulatory screening to construct pipelines to convey gas to their plants.

Ghana Gas has the largest pipeline complex in the country. Roughly $1.6 billion of equity and public/ publicly-guaranteed debt have gone into this huge infrastructure base. All the offshore pipelines that bring the gas from the sea to land (the most expensive form of gas transmission) belong to Ghana Gas. Yet Ghana Gas is paying an average wholesale price of about $5.4 per unit for the gas it retails.

At any rate, as argued at length in the previous essay, the value of gas pipeline transmission is well established. Ghana Gas provides clear local benchmarks for how to value the contribution of pipeline infrastructure to cost buildup.

The PURC has set a regulated threshold price of $1.288 per MMBTU. And there are many global benchmarks (some of which were shared in the previous essay). If GNPC wishes to give Genser a rebate for transporting the gas it buys over the small proportion of distance covered by its own pipelines versus the much greater extent of public pipelines used in bringing the gas from under the sea, it can do so rationally and transparently. Such an approach will not generate a rebate of more than $0.5 per unit.

As for the planned use of Genser’s pipelines for free by GNPC, the proposition has been cited as a justification since early 2020. GNPC has not transporting any volume of gas through said pipelines. Some of the use cases for that arrangement, like the bauxite refinery at Nyinahin, are highly futuristic. It is plainly ridiculous to be granting massive discounts on the basis of hazy, unrealised, future barter arrangements.

More bizarrely, the agreement signed between GNPC and Genser does not bear out the “free” thesis. Genser intends to charge a “gas compression fee”:

Extract from July 2021 GNPC – Genser agreement

Does Genser pay on time?

The short answer is “no”.

As of the end of December 2021, it owed roughly 50% of its due obligations to GNGC, in the amount of $4.6 million.

GNGC Accounting Data (2021)

In the first half of 2022, as of June 30th, Genser owed GNPC more than $3.24 million. Whilst reconciliation is still outstanding for Q3 2022, that debt keeps rising and may hit $5 million.

Genser has a track record of owing suppliers. It recently had to pay damages to Vitol in a London court for failure to pay for LPG/NGL (mostly propane) deliveries made to it during the lean years of 2018 and 2019 when it had not yet secured its sweetheart deal with GNPC and was paying in excess of $7 per unit of gas to private suppliers.

Source: Vitol SA v Genser Energy Ghana Limited (July 2022)

Worst of all, it gets Worse

Imagine the horror of IMANI and ACEP analysts when they discovered that all the time GNPC and Genser PR agents were seeking to justify Genser’s $4.2/MMBTU IDT (“industrial development tariff”) and the various rebates as sensible commercial terms, the company was neither paying $4.2/MMBTU nor, as some of its spokespersons have said, $3.5.

Genser has not even been paying the contract price of $2.79 all the time.

According to reconciled GNGC accounting data, Genser has in fact been paying, wait for it, $1.14! Essentially, a giveaway price.

Comparing how much Genser pays with the rest of the industry, including those manufacturers that actually qualifies for the IDT rate as a result of their playing critical roles in resurrecting strategic dying industries like ceramics, throws into alarming relief the true scale of the mess.

Here is part of a pricing chart for January/February 2022:

GNGC Accounting Data

And for June/July 2022:

GNGC Accounting Data (2022)

Clearly, Genser is the golden-haired boy-wonder of the power consuming world. It is billed nearly 6 times LESS than the main public power utility and nearly 4 times LESS than companies that are actually using gas to drive Ghana’s industrialisation.

The Big Picture

Whilst we have talked about the risk of Ghana losing $1.5 billion if GNPC continues to sell gas to genser at the contract price (based on the contract gas volume of more than 328 million MMBTU), it is important to now clarify that Ghana has already lost considerable amounts of money.

Selling gas at $1.14, $1.72 or even $2.79 to Genser instead of the $7.9 it costs GNPC to acquire the gas or the $6.08 set by the regulator for the relevant period means losses of between $4.97 and $6.76 for every unit of gas sold. In 2021, Genser bought more than 7 million MMBTU of gas from GNPC implying a loss of between $34 million and $45 million already incurred, even after making provision for a fair transmission rebate for the use of Genser’s own pipeline. By the end of this year, $100 million in losses would have already accrued.

At a time when Ghana is seeking a $3 billion IMF bailout due to a debt crisis worsened by mounting energy sector liabilities of more than $2 billion a year in recent estimations, it is both unconscionable and mindboggling that GNPC can afford to lose nearly $100 million on a single contract in just two years or be willing to lose as much as $1.5 billion over the contract’s lifetime.

To underline the fishiness and level of impunity, consider that Genser started enjoying these discounts EVEN BEFORE GNGC signed the new agreement with the fresh discounts based on the futuristic pipeline barter trade. Here is a January 2021 trade ledger entry (the agreement was signed in July 2021).

GNGC Accounting Data

Clearly, the Parliament of Ghana which now claims to be investigating this matter has its full credibility on the line as Ghanaians await its findings.

[This short briefing note summarises IMANI’s preliminary findings from an analysis of potential sovereign debt restructuring in Ghana.]

The government of Ghana is confronted with a series of Hobson’s choices regarding its current debt stock.

  1. Should it restructure the debt or persist in the hope that the signaling effect and maximum inflows of a potential 3-year $3 billion IMF deal will make it possible to push the debt can farther than the road?
  2. Should it restructure only the domestic debt (debt owed to Ghanaians who have bought government securities such as treasury bills) or only the external debt (debt owed to foreigners who have bought Ghana’s Eurobonds and given out various loans for various projects? Or both?
  3. Should it try to bring all creditors together in a single decision-making forum (such as a “creditor committee”) or attempt to engage them in informal consultative conferences and surveys?
  4. Should it attempt to address the debt issues purely through contractual negotiations or should it complement negotiations with legislative support (make laws to ease its way)?

These questions present some of the most formidable analytical challenges the Ghanaian government has ever faced. IMANI’s analysts wonder if the government recognises this fact, if it has the leadership to mobilise the nation behind the choices it makes and whether it has the temperament to manage inevitable dissent, especially from the official political opposition and the country’s highly vocal civil society movement.

Context: IMF Engagement

The speculations about a potential debt restructuring by the government of Ghana arose in the context of the commencement of formal negotiations this week between the government and the IMF on a possible bailout package through the so-called “extended credit facility” (ECF). (Side note: the government’s attempts to solicit views and inputs into this whole effort have been perfunctory at best in line with a general disinterest in building national consensus on critical issues).

The IMF’s policy when designing a bailout for a country that has serious debt challenges can be summed as follows:

In short, if a country has what the IMF believes is an unsustainable debt burden, the IMF cannot cut a deal unless the country presents a credible plan of how it will make the debt sustainable. One common way of making debt sustainable is by working with creditors to restructure the debt.

In determining whether a country has unsustainable debt, the IMF evaluates, first, the country’s capacity to carry debt and then the trajectory of revenues and repayments to see if in the medium-term the country will face debt distress or is already in distress.

Here is how the IMF assesses whether either condition has been met during the so-called Sovereign Risk & Debt Sustainability Analysis:

Because these are standardised terms, and countries differ greatly in their circumstances, the IMF does not slavishly follow its rubric of determining if because a country faces a high risk of distress or is already in distress it should or should not be given a deal. Its staff, who negotiate deals with countries, and its board, which approves any deal before it can come into effect, exercise judgement in coming to final conclusions. Here’s how they put it:
So is Ghana’s Debt Sustainable?

As indicated above, the starting point for deciding if a country can continue servicing its debts without defaulting in the medium term or triggering economic collapse is to look at the country’s capacity to carry debt. In the IMF world, this is done through the Country Policy & Institutional Assessment (CPIA) which is led by the World Bank. If the results are stellar, the country is classed as having high capacity. If it is good but not stellar, the country is said to have “medium” capacity. “Low” is the obvious bottom rating.

Ghana is currently rated as having “medium capacity”. What that means is that the thresholds and benchmarks used to assess when a country’s debt is too much are looser for Ghana than for countries rated low. Ghana used to be ranked second across Africa. This is how it fared in 2012:

It declined to 7 in 2019 and slid to 8 in 2020.

It is instructive to note in this regard that it is not only Civil Society Organisations (CSOs) who have complained about a fall in the quality of Ghana’s institutions and its policymaking process. It is quite something to see Uganda now beat Ghana on policy and institutional quality. That notwithstanding, Ghana is considerably above the regional average, hence its medium rating.

Also, Ghana is not classified among resource-rich countries in a counter-intuitive assessment which suggests a more diversified economy.

The mechanics of how the CPIA feed into the final debt sustainability numbers can be seen in this IMF chart here:

Once, debt carrying capacity based on institutional and policy strength has been accounted for, it is time to look at the actual flows of money for debt servicing: in and out. And to try and estimate the liquidity and solvency factors impacting the debt sustainability trajectory.

An analyst doing this first checks the debt ratio using this IMF equation:

Next, one tries to assess the time effect of repayment obligations using another IMF equation:

When such analysis was last performed for Ghana, the IMF said the situation was quite dire BUT Ghana’s debt was still sustainable given some caveats.

The judgement on sustainability was based on comparing certain important ratios of Ghana’s debt to certain macroeconomic measures of its economy and assessing divergence:

What’s the IMF’s Record in Judging Ghana’s Debt Sustainability?

In 2015, when Ghana entered into its previous IMF program, the IMF judged the country’s debt to be sustainable based on projections of how the debt will accumulate and Ghana’s capacity to service. As it turned out, the IMF was far too optimistic.

In June 2021, it was less sanguine about the situation, but by ignoring, at the prompting of the government, the impact of energy sector liabilities, Cocobod’s deteriorating financial circumstances (which ultimately devolves to the government) and various arrears and contingencies, it produced a baseline scenario of how the country’s debt will evolve and changes to that scenario in the event of certain shocks, such as inability to borrow from the capital markets (i.e. “loss of market access”)It w. That baseline scenario, as already mentioned, presented Ghana’s debt as sustainable but on a very borderline basis.

It was clear even then that the market, on the other hand, had already started, way back in 2019, to negatively revise its opinion on the riskiness of Ghana’s debt. Investors were asking for more discounts when buying Ghana’s debt (so “spreads” on the debt were rising).

What is the situation today?

First, let us look at the thresholds for the ratios preferred by the IMF in determining if a country can continue servicing their debts without causing damage to the economy. Here:

Ghana’s actual and projected numbers from 2019 to 2022 are as below:

In 2022, the IMF expected the total external debt to the total GDP to be 40.9%. The maximum threshold as readers can see above is 40%. Ghana’s total external debt today is $31 billion (adding recent borrowings). Due to depreciation of the Cedi, the GDP, despite a massive administrative adjustment by the government, has fallen to $58 billion, as per the latest budgetary numbers from the government for 2022:

Consequently, instead of 40.9%, the ratio is now 53%.

Bank of Ghana exports data for 2021 and data so far for 2022 can be cross-analysed to generate a figure for 2022 of $14.5 billion taking into account relatively higher oil numbers, due to rising prices (significantly lower than the government’s midyear projection though) and lower numbers for gold and cocoa due to production challenges.

Instead of the projected 128%, the number rises to an alarming 221%.

Debt service to Revenue is currently estimated at 60%. This is because revenue projection for 2022 is currently GHS 80 billion whilst interest payment alone (i.e. without accounting for amortisation) is at 41.36 billion.

The 60% figure is well in excess of the projected 32% and massively in breach of the 18% threshold in the IMF’s debt sustainability framework (DSA). Debt service to export is about 32%, which is more than double the projected 14.8% or the 15% DSA threshold.

Ghana’s debt is thus technically unsustainable based on the IMF’s standard yardsticks. However, the IMF has the discretion to look at country specific factors, such as the fact that external debt servicing is less than 10% of export revenue, and various capacity for adjustment related factors when making the ultimate decision as to whether a credible plan is underway to restore sustainability.

When the IMF chooses to overlook its usual constraints regarding lending to countries with unsustainable or near unsustainable lending, it turns to its “exceptional access” policies, such as the “lending into arrears” rules, which permits it to lend to even countries that may already be in default on some of their debt.

Countering against such a lenient view of this situation is the fact that the IMF was explicit in its last assessment that sustainability is hinged on continuing market access, which currently Ghana has lost.

On top of all this, Ghana is number 5 on the list of countries that have nearly maxed out their total quota for IMF support, even under the new COVID-triggered loosening of quota limits. In fact, should the IMF approve the $3 billion request, Ghana will shoot to the top of the table bar none (i.e. even outflanking Ethiopia).

Which brings us squarely to the issue of whether, in the absence of market access ahead of a Fund program, “fiscal consolidation” (cutting government expenditure whilst lifting revenue) alone would be enough to achieve sustainability without debt structuring. Here is what the IMF said in the 2021 Ghana Debt Sustainability Analysis report.

Assuming the IMF concludes that without debt treatment, Ghana’s debt is not sustainable? In those circumstances despite eligibility for “exceptional access”, some “debt treatment” (i.e. restructuring) may still be required.

In such circumstances the issue we started with then assumes outsized proportion: should Ghana accept debt restructuring as a condition for an IMF program?

The 3-part Choice: Domestic, External or Both

Analysts who specialise in debt restructuring looking purely at the indicators would suggest that Ghana ought to restructure both domestic and external debt.

This is because Ghana meets three of the four conditions IMF analysts usually set for that determination:

As can be seen from the chart above, only the bank credit to private sector condition is not met by Ghana.

There is of course a considerable burden in conducting a simultaneous domestic and external debt restructuring process. And, of course, there is only so much capacity in the Finance Ministry and the Presidency.

In the case of an external restructuring, Ghana has to contend with very different creditor categories with vastly different power dynamics and reputational consequences:

Source: Papaioannou et al (2012)

Benu Schneider simplifies what is possible as far as external debt is concerned as follows:

In short:

  • Debt to the IMF, World Bank, AfDB and other multilaterals cannot be restructured in Ghana’s current situation. They typically require official multilateral initiatives like HIPC.
  • Debt owed to countries like the US, the UK, Germany, China and other “bilateral partners” require a dedicated program which will require the convening of the donors to determine the terms of engagement. This will take many months. Luckily, Ghana does not owe a lot of money to China so it is unlikely that such a convening would take the two years that it took Zambia but it definitely not be done in a couple of months.
  • It is very unlikely that Ghana will try to default on its various Letters of Credit (LCs), bank-guaranteed supplier credit and conventional bank loans as that would impact severely on a wide range of infrastructure projects and resurrect dumsor (the country’s perennial power crises), posing an existential threat to the stability of the government. At any rate, cutting a London Club deal will take not less than one year as well.
  • The country’s Eurobond portfolio is thus where a lot of the emphasis shall be placed in any external debt restructuring. Ghana had about $13.1 billion of Eurobonds outstanding at face value at the end of 2021. By the end of this quarter, it should reduce to about $12.4 billion.

Besides constituting nearly half of the stock of Ghana’s external debt, eurobond issuances are also Ghana’s costliest external debt, increasing the temptation for restructuring. According to analysts, nearly $7.5 billion of the principal must be cleared by 2032 ($1.5 billion of which is due in just 3 years). Of the 16 or so outstanding bonds, 14 have collective action clauses that makes it easier to convene “creditor committees” to negotiate an en masse agreement.

Yet, the Eurobond debt service burden is still only about 12% of total revenues and thus, per our earlier estimates in this note, just 20% of the overall public debt service burden. In fact, Ghana’s total external debt service burden is about 25% of the entire annual debt service burden. In these circumstances, some analysts contend that viewed only from the point of view of the liquidity factor (instead of both liquidity and solvency considerations), the domestic debt, because it constitutes 75% of the annual debt payment burden, ought to be tackled with greater urgency.

Restructuring Domestic Debt Alone

When considering the restructuring of domestic debt, a government usually only has three broad strategies as follows:

  • Shaving off some of the principal amount (“face value reduction” or “haircut”).
  • Changing the tenor or maturity of the debt, which is to say deferring payments.
  • Lowering the initial interest rate of the debt instruments.

These types of restructuring activities in relation to domestic debt happen more often than many people suppose. According to the Florence-based European University Institute’s Aitor Erce, domestic debt restructurings nowadays exceed external restructurings in number.

African countries have now overtaken Latin American countries in their preference for domestic debt restructurings.

That said, Ghana has historically not favoured domestic debt restructuring, mostly because until recently domestic debt was not the principal driver of high debt service costs.
Episodes of debt restructuring in Ghana

The only two instances of domestic debt restructuring in Ghana, in 1979 and 1982, primarily featured demonetization rather than principal haircuts or interest rate reduction.

Will it be easier to restructure the domestic debt instead of the external one?

According to Aitor, domestic debt restructuring tend to be quicker. 42% of domestic debt restructurings happen in less than 6 months; only 13% of external ones do.

However, for various reasons, affected investors tend to lose more money during domestic restructurings:

Though “simpler” than external variants, domestic debt restructuring can still get complex if sophisticated investors are involved in the negotiations. Take the Greek debt crisis in the aftermath of the 2008-2009 international financial meltdown for instance. 86% of all Greek debt was issued under Greek law, making the process a predominantly domestic restructuring one.

The Greek government exchanged existing debt for new ones with markedly lower returns but it also added various enhancements to try and dampen investor resistance.

Because Greece was a member of the European Union, it could also fall on the European Financial Stability Facility to design the debt exchange mechanism resulting in a secondary offer to investors: the EFSF Note:

Unfortunately, regional mechanisms for debt crisis responses are virtually non-existent in Africa, so each country bears its own woes.

Greece also came up with a creative third offering that linked the likelihood of affected investors getting paid to the country’s economic performance as measured by EUROSTAT, the pan-European statistics body. The so-called “GDP warrants” introduced additional game-theoretic elements into the whole debt restructuring affair:

Should Ghana decide to go the debt restructuring route, would such creative measures be viewed as credible by investors? Would investors trust statistics from the local authorities for use in designing such contingent triggers, including statistical parameters such as “GDP growth”?

Factors to consider in any Domestic Debt Restructuring Exercise

In addition to the “speed advantage” of domestic debt restructuring (especially given the government’s apparent need for haste) and domestic debt’s 75% contribution to debt service costs, the fact, as illustrated by the Greek case, that local law is more amenable to government desires also favours a domestic debt restructuring exercise at present.

Should the government be inclined to include domestic debt in any planned debt restructuring exercise, it would be minded to consider the following points very carefully.

First, a decision has to be made if only listed debt (essentially bonds and treasury bills) shall be considered or other government liabilities like loans and contractor arrears will also be touched. Because listed debt is easier to track and is more standardised, most analysts assume that it is the only part of the debt that will be restructured.

If so, then attention has to be paid to the different categories of creditors. Below, the “client type” term refers to the current classification of domestic listed debt creditors.

Data from Ghana Fixed Income Market

Of somewhat less importance is the definition of “government debt” itself. Different parts of the government can incur debt, sometimes with varying character:

In Ghanaian context of debt, the “central government” is the most dominant player. However, there are important exposures stemming from state owned enterprises (SOEs) and guarantees.

From the Ghana Fixed Income Market (GFIM) data posted above, it can be seen that exposure to central government debt is concentrated among two main broad classes of creditors: commercial banks and financial sector actors (like insurance and pension operators).

•Stripping out about GHS 9 billion of Bank of Ghana and Cocobod securities, the commercial banks hold about GHS 65 billion (~$6.5 billion) of the ~GHS 190 billion ($19 billion) domestic debt (– ~34%). But total exposure to public & quasi-fiscal debt may be significantly more as Banks are sometimes ultimate backstoppers for other debts owed to the private sector (such as “contractors”) by the government .

•Institutional Investors and Businesses hold ~26%

•Individuals & Households hold ~13%

•Foreign Investors hold ~12.3%

•Pension Funds hold ~7%

•Insurance, Rural Banks & Others hold ~7.7%

It is important to remember that the government of Ghana has also borrowed through special purpose vehicles like the Daakye Trust and ESLA PLC, which are, by law, commercial entities in their own right. ESLA and Daakye can be sued on their own account and some sovereign rights may not apply to them.

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.

Businesses that operate “floats” of various kinds, such as those in the fintech, telecoms, gambling/lotteries and related areas have traditionally used government securities to hedge against inflation and will likely resort to the courts to injunct the process except for the large companies whose political economy exposure in Ghana reduces their incentive to oppose government plans.

All in all, it is estimated that more than 1.4 million people are directly exposed to government securities judging by the number of depositary accounts in the country. This is a numerically significant political force.

The Special Case of the Banks

Because the commercial banks hold one-third of Ghana government’s debt, and in view of the ongoing financial sector cleanup, their situation deserves special mention.

Some banks are of course more exposed than others. Whilst most private banks were cutting their holdings of government debt securities, GCB (a bank with significant government shareholding), for instance, has been doubling down, adding roughly 500 million between 2021 and 2022.

Agricultural Development Bank (ADB), also a state majority owned bank, on the other hand, has cut its holdings by almost 25%.

Some private banks like Zenith have followed GCB’s lead by increasing their holdings.

Across the industry as a whole, however, the fact remains that income from government securities has been rising even as income from the “normal” operational activities of lending and trading drops. Some analysis suggest that income from government securities has outstripped interest income and now hovers around the 50% mark. Interest income on the other hand seems to be trending towards the 30% industry-wide average mark.

With government securities constituting nearly 30% of assets, and exceeding 45% of income (due to the high concentration of “investment” funds in government securities among Ghanaian banks), any process that cuts face value (“haircuts”) will hit the risk-weighting of banks’ capital. Similarly, any process that touches coupons/interest rate will hit the bottom-line (profit after tax) of banks massively.

Banks with a capital adequacy ratio below 17% may well become technically insolvent if a haircut of 25% or more takes place.

Instructively, technical solvency indicators for Ghanaian banks has been dropping due to risk adjustment of the value of assets despite many financial institutions being cavalier about marking their government securities to market after massive price drops on the secondary market. To the extent that some banks will require government financial assistance to weather any storms triggered by domestic debt restructuring, the total savings my be significantly less than assumed on face value. In fact, in some restructurings the overall stock of public debt actually grows even if debt service pressures are alleviated.

On the positive side, Ghanaian banks have the second or third highest (depending on risk adjustment) return on assets in the world and thus a good number of them may be able to withstand a significant hit to profitability.

Because some banks and financial institutions are already experiencing significant liquidity, capital and solvency challeges, IMANI strongly advises that prior to any restructuring activities in the local market, a fresh asset quality review be conducted.

Non-Bank Actors

Other financial sector actors will likewise be heavily impacted.

Because regulatory guidance strongly favours investment in government debt securities, many investment funds in Ghana have stocked up heavily on treasury bills and government bonds.

About 25% of insurance industry assets is in government securities. The corresponding number is about 30% for pension funds.

Foreign Investors in Domestic Debt Market

Whilst foreign investor participation in Ghana’s debt markets has dropped from nearly 40% just a few years ago to just a little over 12% today, that number is still significant in absolute terms.

Ghana Fixed Income Market Data

Nearly $2 billion equivalent of foreign investor money is still invested in treasury bills, government bonds and notes.

Some of those debt instruments, amounting to about $800 million, are actually denominated in dollars.

These investors represent the highest level of litigation risk for any attempted domestic debt restructuring. Their interest in suing to prevent any harm to their portfolios is very elevated and government’s political economy leverage is lowest where they are concerned.

Risks to Debt Restructuring

To summarise, the greatest danger to a successful domestic debt restructuring on the technical front is litigation.

Worldwide, that risk has substantially risen for all types of restructuring, domestic or external.

At the domestic level, however, the fact that government debt securities like bonds and bills are governed by local law makes the Greek approach feasible. Greece introduced laws in parliament with retrospective effect thereby overcoming the absence or insufficiency of “collective action clauses” that would have permitted the government from changing the terms of the debt it had borrowed.

We see the government’s inability to build political consensus as the biggest challenge ahead constraining any attempt to resort to using Parliament to speed up the process of renegotiating the terms of its domestic debt. We do not believe that the government’s promise of an “industry-led” process is credible since apart from the banks (who hold only one-third of the debt) such a model would not be viable for the rest of the fragmented private sector.

IMANI’s assessment is that new legislation would be required to smoothly undertake any domestic debt restructuring but the political costs are very high.

The official political opposition will make much of any attempt to penalise Ghanaian investors to the perceived advantage of international investors if the government tries to circumvent litigation risk by ignoring external debt holders and non-resident holders of domestic debt.

The Opposition will however be torn between the political gains from the fallout of a botched restructuring and the prospect of obstructing any restructuring at all and thereby sharing the blame for undermining the IMF program (should debt treatment become a condition for a program).

Economic costs of Debt Restructuring
Source: Benu Schneider

Should the Opposition take a principled policy stance that both the domestic and external debt be restructured, they will find grounding in research that shows that restructuring both external and domestic debt leads to the deepest economic recovery for affected countries after a steep initial hit.

The government will find cold comfort in the same analysis that suggests that recovery terms for doing only domestic debt restructuring are better than for doing only external debt restructuring.

Can Restructuring be Done Right?

The IMF provides a substantial framework for doing domestic debt restructuring with flair:

IMANI’s position is that any restructuring affair in Ghana will face considerable scepticism because of a lack of trust in the ongoing fiscal consolidation program as a whole.

Only 34% of targets in the country’s last strategic public financial management (PFM) process (up to 2018) were met despite the formal inclusion of all key domestic and international public actors.

Performance in budget execution for both debt and expenditure dropped rather than rose significantly over the period.

88% of central government transactions in financial statements of the country’s financial controller in a large sample reviewed by public auditors were found to have bypassed the central accounting system, the GIFMIS.

Fiscal slippages continue unabated.

When the Eurobond door was shut in the face of the government, it did not implement proper austerity. It simply increased domestic borrowing by 480% to finance mostly recurrent expenditure. Cost of borrowing, a key factor in the IMF’s 2021 debt sustainability prognosis for Ghana, is rising alarmingly.

Cost management in government business is abysmal. IMANI is currently investigating the continued accumulation of energy sector liabilities, which some analysts claim may hit $12 billion in years to come, effectively increasing the public debt by more than 20%.

IMANI’s analysts were frightened to discover that the national oil company, GNPC, which a few months earlier had tried to pressure the pricing regulator, the PURC, to increase the price of gas it sells to the utilities based on a claimed average cost to it of $7.9 per MMBTU (a unit of measure), had quietly done a deal to sell gas for just $1.72 to a company called Genser. The potential losses to the country are on the order of $1.5 billion over the life of the contract.

In short, there is a widespread scepticism about the government’s commitment to fiscal consolidation. Seeing that the IMF in previous programs has been complicit in the government’s rosy forward-looking forecasts and failures to hit fiscal reform targets, the overall credibility of any adjustment program, including any debt restructuring, is very much on the line here.

Should a domestic debt structuring lead to a broken fixed income market, no IMF financial injection will make a difference. The government borrows more than GHS 12 billion ($1.2 billion) a month from the local fixed income market, a good chunk of which goes into rolling over existing debt.

Ghana Fixed Income Market Data

No IMF program can inject even $100 million a month directly. Nor will any situation that triggers a local financial sector crisis be viewed favourably by international investors. Which means there is a very real risk of damaging both local sources of financing for the national budget and external perception of recovery, and with the latter any chance of restoring the country’s access to the Eurobond market.

The Hobson starkness of the choices facing the government is as follows: restructuring external debt will prolong the shutout from the Eurobond market forcing the overreliance on the domestic debt markets that has seen borrowing costs surge through the roof. Such a scenario will compound inflation and exchange rate depreciation and deepen the fiscal hole. Restructuring the domestic debt may shut the government out from the local market if investors simply fail to subscribe to any new government issuances. Not restructuring either or resorting to cosmetic measures could undermine any IMF-backed adjustment effort.

In the above context, it is important to remember that weak restructuring effort will likely just delay another debt crisis. Globally, it takes on average two restructurings to stabilise a debt crisis in the medium term. Some countries become “serial defaulters” in the process. As the IMF’s Tamon Asonuma shows, almost 41 countries have earned that ignominious title.

The government faces daunting choices. Leadership would be crucial in building confidence and preventing debt recidivism. Like all burdens, this one too will become lighter if it is shared collectively by those it affects, the people of Ghana. No time is better than now for the government to show its mettle in dispelling mounting scepticism and cynicism about its commitment and capability to get the debt crisis response right.

Failure will have consequences too dire to contemplate.

In a previous essay, we announced a joint investigation by IMANI Africa and the Africa Center for Energy Policy (ACEP), two Accra-based policy think tanks, into a case of possible fiscal recklessness on the part of Ghana’s national oil company, the GNPC.

In our initial analysis, we explained how potential losses of up to $100 million per year could build up for Ghana if the GNPC’s current arrangement with Genser Energy Holdings, a US-based Ghanaian-owned energy company, persists under current conditions. Frequent readers of this site must be aware of our longstanding disquiet about how GNPC’s lack of technical prudence frequently courts financial disaster for Ghana. This inquiry follows faithfully in that tradition.

We intend to explore in a bit more depth the circumstances giving rise to the latest GNPC financial debacle. This essay will thus touch on both the antecedents of the original 16-year contract signed between GNPC and Genser in 2020 and more recent developments to paint a holistic picture of the fiscal risks to the country.

The whole mysterious saga can be traced to an agreement on 20th April 2018 between Ghana Gas, the state-owned gas distribution company (which for a short period, before the advent of the current administration in 2017, was a subsidiary of the GNPC), and Genser in which Genser committed to pay a reasonable price for gas to power embedded/off-grid power plants it leases to various large mines and consumers in the cement and ceramics industries.

Extract from April 2018 Ghana Gas – Genser Agreement

Subject to various regulatory decisions and notices, Genser had committed to pay between $6.50 and $7.29 for each unit (mmBTU) of gas received from Ghana Gas as per the so-called WACOG, a regulated price set by the government of Ghana through an industry regulator (PURC).

Around the same period, it was frantically engaging various liquefied petroleum gas (LPG traders) to supply imported fuel for its plants. The logistics of trucking imported propane and LPG from the port being cumbersome and the costs being benchmarked to world prices, Genser’s ideal situation was a more stable domestic source of gas that it could transmit more conveniently, reliably and cheaply via pipelines. Besides, it faced cashflow constraints that made it difficult dealing with the strict European traders it was then buying from.

Having secured a fair deal with Ghana Gas, Genser began to feel that the price paid by the rest of the power industry wouldn’t work for its modular and embedded generation business model. Consequently, it attempted to influence an industry regulator, the Energy Commission, to grant it a waiver of the regulated price so it could cut a deal for a lower price but the Energy Commission wouldn’t budge.

Extract from 17th February 2019 correspondence between the Energy Commission & Ghana Gas

Specifically, the Energy Commission did not regard Genser as “strategic” for which reason it would deserve a special discount and therefore ruled out any arrangement in which Genser would pay a lower price than the state-set amount (WACOG) it had already agreed to in its contract with Ghana Gas.

But what Ghana Gas had no appetite for, GNPC, as usual, couldn’t wait to gobble. As already discussed in the previous essay, GNPC agreed to price gas for Genser at just $2.79/mmBTU (i.e. at a whopping ~60% discount).

To provide political cover for this scheme, the Chief Executive of GNPC wrote to the Ministry of Energy on 10th August 2020 informing the Deputy Minister about this decision and asking for “ratification”.

Extract from 10th August correspondence between GNPC and the Ministry of Energy

Somehow, the documented history we have narrated above disappears from the record and a contrived basis is invented to suggest that somehow the proposed $2.79/mmBTU price is a better deal than what the GNGC had signed with Genser.

It is also suggested that because Genser has agreed to provide free passage to GNPC gas to other, third party, customers through its pipelines, some kind of barter arrangement is involved.

Extract from 10th August correspondence between GNPC and the Ministry of Energy

Consistent with the GNPC’s less than candid approach, the Chief Executive fails to disclose that the use of the Genser pipelines are not actually free because a “gas compression service charge” applies.

Extract from Ghana Gas – Genser Gas Sale Agreement

More to the point, even if the GNPC wanted to give a rebate to Genser for use of the latter’s pipeline, there are established costs for pipeline transmission in Ghana that would provide a sense of how much it could have knocked off the WACOG or market price of gas for Genser. GNPC provided no such analysis.

The following year, it decided instead to double up. Its Chief Executive wrote again to the Ministry to justify a revision to the contract for an even greater reduction of its gas sale price for Genser.

Extract from 12th April 2021 correspondence between GNPC and the Ministry of Energy

Note once again that the massive near- 40% discount is justified on the basis of pipelines to be built in the future for projects yet to be actually realised. Suffice it to say that no such pipeline to Kumasi was built by December 2021.

At this point, through the ingenuity of GNPC, the maximum price negotiated by Genser with Ghana Gas had been discounted by a whopping 77%. Genser stood to pay $1.72 if it built a pipeline to reach customers in the interior whether or not GNPC found the money to build the new power enclave in that part of the country and for which it claimed it needed all this future pipeline capacity (suffice it to say that GNPC has not been able to build the enclave).

Recall also that this was the period when economies worldwide were recovering from COVID-19 and prices in the most actively traded European hub (TTF) had surged past $10/mmBTU.

Source: Cedigaz (2021)

Genser, frantically raising funds to service debts and stave off harrassing Senior (Debt) Agents, needed the rosiest deals it could find and GNPC was always at hand to oblige. So, $1.72 it was.

The GNPC would also tell various people in policy circles that the source of the gas it was selling to Genser was exclusively Jubilee and TEN. Jubilee and TEN gas are very cheap because Ghana, until later this year, only pays for their processing and distribution costs, but not the gathering and feedstock.

Yet the agreement it had originally signed and the newly amended one would both contain clear “service delivery point” provisions establishing the source of the gas, at least partly, to be from the Sanzule (ORF) facility which is connected to the Sankofa Hub where, according to the same GNPC, gas costs $8.72/mmBTU.

Extract from GNPC – Genser Revised Agreement (2021)
Extract from the GNPC – Genser Agreement (2020)
Extract from GNPC – Genser Revised Agreement (2021)

At the same time that it was busily dispensing discounts like candy, GNPC was also busily harassing the PURC (a price regulator in the energy industry) for increments in tariffs due, among other factors, to the growing costs of aggregating gas. With TEN facilities contributing just 2% of the gas GNPC collects and Jubilee offering 28%, Sankofa was now responsible for a full half of all gas throughput. Yet, Sankofa gas was also the costliest for GNPC, at a mighty $8.72/mmBTU. Whilst Jubilee may cost GNPC $2.3 to obtain, a concession from the oil producers whereby Ghana got the gas feedstock itself for free, the concessionary pricing regime was on course to end in about a year and half from the time the 16-year agreement was agreed.

So, at worst, GNPC was willing to take gas at $8.72 from Sankofa and sell to Genser at $1.72. At best, we can use the industry practice, as GNPC itself does, and look at its average cost of sourcing gas, which it says is $7.9 in 2022 and set to rise to $9.37 in 2026, when the contract with Genser would still have ten more years to go.

GNPC’s calculations of its costs of sourcing gas.

When the Ministry of Energy was notified of the decision by GNPC as enshrined in the initial contract (2020) to grant those massive discounts to Genser, it was neither alarmed nor deterred by any of this.

The Minister waited for about seven months, during which period the contract was of course in force, and then sent the following gems of ministerial guidance.

Extracts from 10th March 2021 directive from the Ministry of Energy to the GNPC

Any surprise then that just four months later, GNPC will revise the contract and hand over another delicious 40% discount for yet more phantom pipeline promises?

Extract from the July 2021 Revised Gas Sale Agreement
between GNPC and Genser

Clearly emboldened by ministerial laxity, GNPC was now literally giving the gas away. The price of the commodity itself would be pegged at just $0.57 should Genser succeed in closing its fundraiser and build a pipeline for GNPC’s future use in distribution schemes that were then unfunded and very much on the drawing board.

The Ministry’s actions were, and it is easy to guess, in contravention of all settled policy. Just around the same time that GNPC was negotiating with Genser, the country’s highest decision making body in economic matters, chaired by no mean personage than the Vice President, had taken a decision about gas pricing. A decision the then Energy Minister in March 2020 had communicated to the GNPC.

Extract from 13th March 2020 Directive from the Minister of Energy

The essence of the decision was simply that gas aggregators (like GNPC) should endeavour to recover their full costs. Full cost recovery and financial exposure mitigation are obvious commonsensical principles dating from Ghana’s first Natural Gas Pricing Policy from 2012. It had been further reinforced in the apparently discarded Gas Master Plan and continues to inform price regulation by the PURC today.

Extract from Ghana’s Natural Gas Pricing Policy
Extract from the Gas Masterplan of Ghana

More recent reviewers of Ghana’s national gas policy have reinforced the simple point that in the absence of thoroughly compelling reasons there should be no deviation from the WACOG, as a reflection of average cost recovery across the power sector, in terms such as the following:

It is worth reminding readers that the WACOG, though set below the cost that GNPC says it pays to get the gas it sells, is definitely not $2.79. Or, God forbid, $1.72.

Recent WACOG Rates

So, even if GNPC does not want to charge its own estimate of a fair price at $7.9/mmBTU, is there any reason why the $5.9/mmBTU WACOG minus any pro-rata transmission charges owing to the presence of Genser’s own pipelines in the mix shouldn’t apply? What exceptional reasons really?

On the point of Genser being somewhat unique in having its own pipelines, it’s worth recalling GNPC’s own numbers of the cost contribution of pipeline transmission to the price buildup.

GNPC Service Charge Schedule (2022)

In essence, one cannot justify a rebate for pipeline transmission higher than half of $0.919 if one wishes to account for Genser picking up the gas midway from their offshore source at the agreed “delivery points”.

Globally, until distances exceed 1,500km (total network length in Ghana is less than this), it is very hard to justify pipeline transmission tariffs exceeding one dollar per mmBTU for natural gas transportation.

Source: Sandi Lansetti (2016)

In similar light, GNPC’s use of Genser’s pipeline construction and its potential use of same in separate contexts as the basis for discounts is highly suspect given the typically low contribution transportation makes to natural gas project capitalisation.

Source: Fadl H. Saadi, Nathan S. Lewis & Eric W. McFarland (2018)

So, once again, what other exceptional reasons then? Let’s even suppose that the Energy Commission was wrong, and Genser, even though so far it basically just sells power to primary extractors like mines with a sprinkling of cement and ceramics players and is thus far from a massive value addition enabler, deserves to be regarded as a “strategic actor” as the GNPC insists it is. One would still have to look, before going anywhere near subsidies, at whether domestic prices of gas are in fact too high for competitively priced power to be produced.

Luckily, there are well settled methodologies for doing this, such as the use of netback price & value analysis. Done properly, netback analysis can approximate industry willingness to pay and provide robust estimates of gas pricing needed to accommodate breakeven points in the capital investment analysis of various industries. When Ghana last concluded such an exercise, it found that $9 to $12 per mmBTU was a reasonable price range for those industries for which gas-to-power generation makes economic sense.

Netback Analysis for Ghana’s Gas Masterplan

To cut to the chase, is Ghana’s $5.9 WACOG rate exorbitant? So much so that it must be tempered by subsidies? Is it a “strategic industries killer”? Global comparative analysis does not suggest so. Indonesia, a fast-growing gas market that could offer benchmarks for Ghana in various ways has a $6 WACOG-like price threshold. There too, key industries cluster around the $9 to $12 per mmBTU sweetspot pricing range.

Netback and Regulated Price for Gas per industry in the Indonesian context.
Source: Muharam & Purwanto (2021)

At the time Ghana Gas offered the $6.5 – $7.29 per MMBTU range, the global picture for gas pricing was pretty aligned with the regulatory view in Ghana.

Comparative Analysis of Natural Gas pricing in the GNPC – Genser original agreement timeframe

The other question is whether based on the prevailing sentiment during the contract negotiation, a belief that relatively cheaper Jubilee gas could be used for strategic purposes to promote the emergence of a diversified energy conglomerate of Ghanaian origin could have justified that humongous 77% discount. Even that concession, wild as it is, removed from the reality of gas either coming primarily from the expensive Sankofa Hub or at best being commingled and thus costed at the GNPC’s own weighted level, still does not condone the pricing agreed upon in both 2020 and 2021.

Analysis for Review of Ghana’s
Gas Pricing Policy

The policy position among the country’s experts was clearly that Jubilee gas ought not to be included in pricing indices. And that even if it was, gas prices would not fall below the $4.5/mmBTU range. Taking cue from the logic in the now, apparently abandoned, Gas Masterplan, prudence ought to remain the policy anchor.

Recommendations for Strategic Sectors’
gas subsidy formulation

It is amply clear from the foregoing that GNPC’s decision to discount the price of its gas to Genser from the $7.9/mmBTU it says it costs on average to produce the commodity, and to deviate from even the regulatory price benchmark of $5.9 (2022) – $6.08 (2020) per mmBTU is suspect. Its further decision to offer the gas to Genser at a prospective amount of $1.72 for 16 years can therefore not be justified at any level on the evidence currently available.

Until GNPC presents compelling arguments to vindicate itself, we must consider the contract as constituting a massive financial loss as follows.

Fair Price of Commodity – $7.9

  • Rebate for Buyer Transportation – $0.5
  • Strategic Option Rebate for Third Party Delivery via Genser Pipeline – $1

Prudent Net Sales Price – $6.4

Choosing to sell the gas at $1.72/mmBTU to Genser therefore generates a loss of $4.68/mmBTU.

The contract envisages delivery of ~329 million mmBTU over its 16 year lifetime.

Extract from Revised GNPC – Genser Agreement (2021)

The total potential financial loss to Ghana is thus $1.539 BILLION.

Of course this number is an approximation of approximations. But all the trends point to elevated prices for natural gas in the medium-term justifying the projection into the future of these round numbers. It is a very sensible call to estimate losses around this general figure should the contract as currently crafted persist without very sound, genuine, strategic reasons.

The point must be stressed that no one is accusing Genser of wrongdoing. At worst, it is guilty of “excessively effective” lobbying and shrewd negotiation. But it is a private business seeking to maximise the welfare of its corporate backers who are taking risks worth ~$500 million so one can understand. Our focus is thus principally on the role of GNPC, which has a bounden ficuciary duty to prevent Ghana from losing such fantastical sums whether out of sheer incompetence or recklessness.

This essay is part of an active, ongoing, investigation by ACEP and IMANI. Readers with information are strongly encouraged to reach out.

On 27th July 2022, the newswires flashed an announcement by Genser Energy Holdings, a Ghanaian-founded energy company headquartered in the United States (Washington DC) and backed by the powerful Oppenheimer family of South Africa and several other funds and banks.

The announcement concerned the successful closing of two loan facilities totaling $425 million to support Genser’s refinancing of its 2019 and other debts; expansion of its petroleum pipelines (the only privately owned facilities of their kind in Ghana) and port facilities (for its propane and other natural gas liquids – NGLs – trade); and the funding of a greenfield gas processing facility to compete with the current state-owned monopoly at Atuabo.

From its origins in 2007 as a small off-grid energy supplier, Genser is now set for the big leagues. Its first deal in 2007 with Golden Star Resources to supply a 36MW power plant for the miner’s Bogoso site could hardly have predicted the emergence of a sophisticated diversified energy holdings conglomerate as Genser seems now determined to become.

Until “dumsor” struck, and at the height of that excruciating power crisis, Genser found its mojo. It entered into a 5-year power plant leasing and maintenance deal with Unilever to power the latter’s Tema factory. Paving the way for even bigger prospects: three significant deals with major gold producers, Kinross and Goldfields.

It is Genser’s powerplants serving Goldfields in Tarkwa and Damang that, however, have fuelled the massive infrastructure financing deals announced with such flourish in 2019 and July of this year. The country’s gold mines consume more power than the whole of Ghana’s northern sector (equivalent to ~15% of the power distributed by ECG). By positioning itself as the offgrid power supplier of choice to the big gold mines, Genser is paving the path to industry dominance.

Even juicier opportunities lie ahead: the Ghanaian government seems likely to outsource gas transportation for the new power enclave in the Kumasi area it intends to develop around the Ameri plant to Genser. In the course of researching this post, we saw how instrumental letters or support issued by the government attesting to these future deals were in helping the company close its latest funding round.

Whilst there is no denying the growth in Genser’s operations in its 15 years of existence, it is starting to look under further scrutiny that its expansive ambitions of the last few years have sadly been bankrolled at Ghana’s expense.

Careful work by analysts at the Africa Center for Energy Policy (ACEP) and IMANI has revealed that Genser’s operating profits may be heavily dependent on a sweetheart, unpublicised, deal it has signed with the Ghana National Petroleum Corporation (GNPC) whereby it pays a fixed rate of just $2.79 per mmBTU (a unit of energy measurement) for the natural gas it receives from the National Oil Company. There is some evidence to suggest that the GNPC sweetheart deal came after attempts to woo Ghana Gas, the national gas company, by Genser had been less than successful.

Extract from the contract between Genser and GNPC

Genser’s negotiated gas rate with GNPC is completely mindboggling in a country where the energy regulators assume an average cost of gas of $6.08 per mmBTU when setting tariffs for electricity pricing. In fact, actual gas pricing on the market for various power plant operators (or the government, depending on circumstances) is often higher than this. In 2019, for instance, it averaged $6.91 per mmBTU, and total costs of gas to the industry as a whole amounted to more than $455 million.

Gas prices for power generation in Ghana in 2019. Source: Energy Commission of Ghana

In 2020 and 2021, Ghana bought gas at $6.14 per mmBTU and $7.24 mmBTU on average from private producers in its offshore basin and from Nigeria, respectively, to fuel thermal plants. In fact, from the agreement between GNPC and Genser, it is clear that GNPC gets the gas from the J.A. Kufuor Floating, Production, Storage & Offloading (FPSO) facility in the Sankofa Hub, beaches the gas at the Sanzule facility and then handover at a designated delivery point for Genser to transmit through its own pipelines to Damang and Tarkwa to fuel power plants for the gold mines in that enclave.

From the chart below, it can be inferred that this is gas sold to Ghana at $6.14 per mmBTU (down from an earlier rate of $9.59 per mmBTU) and then on-sold to Genser at $2.79 per mmBTU. What is worse, tariff analysis data has suggests an optimal gas selling price of $9.42 per mmBTU if GNPC’s gas trading operation is to be sustainable. A prospect further threatened by the national oil company’s professed strategy of importing liquefied natural gas (LNG) into Ghana from overseas at a cost some analysts contend will hit $11+ per mmBTU at delivery point.

In simple terms, for every unit of gas sold to Genser, a potential loss of $3.35 per mmBTU is recordable. For 2022, the potential loss to Ghana and inferred windfall for Genser is more than $52 million (assuming fully delivered volumes). By 2025, going by natural gas pricing forecasts, the total loss could easily hit $100 million a year.

Extract from GNPC – Genser contract

Genser’s recent good fortune is even starker when viewed in light of its challenging operational history.

From early 2018 to mid 2019, Genser and commodities trader Vitol had an arrangement in which the former was to supply the latter with between 4.7 million and 6.25 million gallons of propane (one of the two main gases found in liquefied petroleum gas – LPG) delivered to a floating facility docked at Takoradi (or roundtripped in a ship-to-ship transfer maneuvre between Lome, Togo, and Takoradi). The price of the propane in 2018 was roughly $0.9 per gallon on average after accounting for the premium charged on OPIS Mont Belvieu pricing (so, for example, Genser owed Vitol $4.24 million for a delivery of ~4.7 million gallons of propane made in February 2019).

Using standard heat conversion factors, one can benchmark this propane pricing to the pricing of the natural gas being sold by GNPC to Genser (natural gas, by the way, is composed mainly of the lighter methane with a bit of ethane). That conversion yields $10.26 per mmBTU. One may, arguably, choose to account for higher propane combustion efficiency so as to reduce the amount to roughly $4.5. The other costs of handling and transportation (including the trucking, floating storage and bunkering costs) have not been fully captured. It is safe to say that just before Genser signed the groundbreaking, never publicised, deal with GNPC, allowing it to switch from LPG to LNG/natural gas, it was paying the likes of Vitol significantly more than $5 per mmBTU equivalent for the feedstock gas it needed to power its plants.

Had it continued to rely on these contracts, then at today’s propane and butane prices, premiums and handling inclusive, its fuel costs from imports would exceed $7 per mmBTU equivalent (applying the same conversion factors). Its serious cashflow problems would have continued to precipitate repeated payment delays, liquidation damages from customers like Goldfields, and eventually the same type of defaults that had to be remedied in an English court of law in July of this year with settlements and costs exceeding $20 million for breach of supply contracts.

But, as we have seen above, Genser managed to convince GNPC to enter a sweetheart deal of ~$2.79 per MMBTU, thereby completely transforming its fortunes. By virtue of its sweetheart agreement with GNPC, it is poised to consume more of Ghana’s precious gas than 9 of the 13 main thermal power plants operating in the country, only slightly behind TICO in 2022, and set to overtake TAPCO in mid-2023. The volume of gas supply committed by GNPC to Genser in the mindboggling contract for the 2025 timeframe will be nearly half the total consumption of VRA powerplants in 2020.

Gas allocation to power plants in Ghana 2020/2021 timeframe. Source: Energy Commission of Ghana

Whilst entrepreneurship of the calibre of Genser is always to be celebrated, the success of private business cannot be at the expense of public good. Every company that pays $2.79 for a critical input that its competitors get for $6.08 will do wonders in the market. More to the point, fiduciaries of public interest like GNPC cannot throw out every hint of commercial prudence to advance the private wellbeing of their corporate favourites.

Purely from a public policy point of view, GNPC ought to have looked carefully at the export price parity numbers to determine a starting point for its deal with Genser. It was amply clear at the time of sealing the deal that natural gas prices were going through a cyclical downturn and that historical trends called for the use of Henry Hub spot benchmarks (applying discounts and premiums as appropriate).

Natural gas spot price cycles. Source: Platts

A flexible and market-sensitive pricing regime with appropriate caps, floors, discounts and premiums would have ensured that now that natural gas pricing on the international markets is inching towards $9 per mmBTU, a Ghanaian state-owned company wouldn’t be selling the commodity at $2.79. That spot gas prices were low at the time of concluding the deal is absolutely no basis for not having introduced some kind of market-aligning mechanism into the pricing formula.

No doubt, GNPC will counter with the argument that amendment to the pricing annexure is within their purview and may even have been considered. But the evidence is glaring that Genser’s obscene margins on these trades started to emerge just a few months after the contract was signed and that it has made a total bonanza on the gig. Because of the ridiculous pricing concessions, it can afford to undercut any competitor in its segment of the market, show fantastic future earning potential, and thus attract large investments to further seal its dominance in the private pipeline, gas port logistics, and modular off-grid market niches.

Whilst Genser has a few cement companies in its customer list, it is overwhelmingly a power producer for the primary extractive sector, which many economists argue strenuously undercontributes to government revenues in Ghana. It seems thus very unlikely that even a formal government policy to use highly subsidised gas for strategic purposes would have countenanced the $2.79 per mmBTU sweetheart deal.

The good fortune of the shrewd operators at Genser, interpreted in the light of that unconscionable contract, seems less the outcome of entrepreneurial brilliance and more the byproduct of exceptional incompetence and serious national betrayal on the part of the ever bumbling GNPC.

ACEP and IMANI have only just commenced their investigation into this seeming debacle. Stay tuned.

In January 1994, the French government caved in to pressure and slashed the value of the CFA currency, used by its former colonies in Africa, by half. Overnight, prices skyrocketed, purchasing power dropped, and widespread violence erupted in many cities. In response, the IMF was invited in, France slashed debts owed by the CFA countries and desperate price controls were imposed by many of the governments of the affected countries.

The event sparked a deep dive into the many aspects of exchange rate setting and movements in developing countries. Economists in the hallowed halls of development finance, at the World Bank, the IMF, in academia, took stock of the massive specialist literature on what drives exchange rates, updated a few concepts and reignited many old debates.

All the flurry of reflection however turns around a simple question: how to tell if an exchange rate is overvalued or undervalued?

In the Ghanaian context that seemingly simple question has some profound implications for assessing the government’s attempts to stop the free fall of the national currency, the Cedi. The Cedi has depreciated by a whopping 40% since the beginning of the year. Is this depreciation merely a rational adjustment to balance the country’s true position in the global economic system? That is to say, does the Cedi’s depreciation reflect a true picture of economic fundamentals and therefore is its depreciation merely a movement to an accurate level?

This is a very complicated matter to address. It requires empirical estimation of something called the “long-run equilibrium real (effective) exchange rate” that attempts to compare how the prices of similar and dissimilar goods behave in Ghana versus its trading partners to ascertain if the exchange rate is merely trying to maintain balance. One may even have to make provision for so called “behavioral factors” to balance the current (or “spot”) demand and prices with near-future or “forward” demand and prices etc.

Credit: Esenlik Sanal

Pernicious Supply – Demand Imbalance

A far simpler question may be to ask whether the usual demand for dollars in the economy is being met by the usual supply. Or, whether, as the government now insists, “speculative bubbles” are inflating demand and thereby triggering artificial scarcity. If one reduces the problem to one created largely by speculation, the policy response may favour a lot of “signaling” rather than actions to address real and structural issues.

A government fighting speculators is essentially engaged in a game of bluff. It huffs and puffs that it has enough forex (usually dollars) to meet all legitimate dollar needs in the medium-term so the exchange rate is bound to return to its natural rate at some point, leaving speculators carrying massive losses. If speculators blink first, it wins. In a country with such a fine tradition of political propaganda, such huffing and puffing flows quite naturally. Government spinning goes into overdrive in a style very similar to the one recently witnessed of the Minister of Information threatening speculators to immediately release their hoards back into the market or face annihilation.

If you look carefully though, you will see the old menacing question of how to determine the accurate exchange rate disguised in the implied claim that there is a natural rate that speculators are disrupting. Should it be the case that speculators are merely profiting from a gap between what should be the true, more devalued, Cedi rate and a current, artificially propped up, rate, then it is easy to see how the government’s actions merely increases the eventual profit of bound-to-win speculators.

Africa has seen many instances of such misguided government machoism. One famous instance in Malawi also occurred in 1994, the same year as the titanic CFA devaluation. The country was in that year forced to abandon its commitment to auction adequate volumes of forex to meet legitimate demand. Malawi buckled because the pledge proved unsustainable as it became clear that structural demand rather than speculation was driving the imbalance.

An intuitive survey of recent data and trends in Ghana inclines one to the view that the equilibrium exchange rate in Ghana is influenced more by inflation and changes in rational expectations by investors and other actors in the economy than by interest rates and real incomes. Even a cursory survey of the asset management market will bring up many serious complaints by industry players of a serious outflow of funds from Cedi-denominated assets and uncover widespread perceptions that the central bank’s rate-signaling actions are having zero effect so far. Misguided “government control” interventions in the forex market without due attention to such a reality could strain the balance sheet of the central bank and spillover into the broader financial sector.

Gauging the True Forex Market Balance from Trading Data

To discern a structural demand-supply imbalance of the dollar stock in Ghana, one does not necessarily have to build complex empirical models to ascertain the equilibrium rate. It is possible to glean enough insights to arrive at fairly sound conclusions about the current forex crisis in Ghana by looking at recent trends in actual forex flows in the country supplemented with a brief analysis of the central bank’s forex operations.

The first critical point to note is the sheer expansion of the country’s forex trade in less than a decade. Between 2012 and 2020, commercial banks were able to expand their dollar stocks, earned domestically, from $7 billion to $24.82 billion. Absa Bank alone, in 2020, was responsible for $5.68 billion of this amount, many times higher than the forex repatriated by the entire mining sector. Ecobank accounted for $2.648 billion, and Stanbic $2.508 billion. Note that all these three banks earned more forex from a range of sources such as customers involved in exports and remittances than the country earned from the pre-export financing package for Cocobod that the Ministry of Finance is currently touting as the miracle cure for the depreciation.

In fact, the total amount of forex mobilised in the private sector by the commercial banks – i.e. $24.82 billion – in 2020 was double the $12.18 billion that went through the official Bank of Ghana corridor that year, or the $12.65 billion earned in 2019.

More fascinatingly, the 2020 amount of forex mobilised by the commercial banks was also nearly double the $12.7 billion the same banks earned in 2019, underlying the potential for massive volatile swings in this segment of the forex market that is highly sensitive to investor sentiment. Reinforcing the volatility point is the corresponding 2018 figure of $25.95 billion for commercial bank forex earnings. In summary, aggregate commercial bank forex trades have swung from ~$26 billion to $12 billion and back to $25 billion in a single 3-year cycle.

The Central Bank’s Reserves Muscle

Judging from these numbers, both in respect of scale and volatility, one wonders if the Bank of Ghana has the financial muscle to manage a floating regime when it goes awry as a result of shifting private investor sentiments, especially in the context of a liberalised capital account.

Below we provide snapshots of the forex reserve composition of the Bank of Ghana across the 3-year cycle and a lagging picture from 2015. (PS: Note the rigidity implied by the amount of reserves held as fixed deposits.)

Source: Bank of Ghana

The 2015 comparative is very interesting for two reasons. Firstly, the total forex flows through the official Bank of Ghana corridor amounted to more than $10 billion. Secondly, the reserve composition of $6 billion is highly consistent with the scaled level of forex receipts and payments through the official Bank of Ghana corridor.

Contrast this relatively stable picture with the dynamics in the commercial dealer banks’ corridor, where total flows amounted to $4.27 billion, a far cry from the ~$25 billion range being observed at the peaks of recent cycles. The massive mismatch between Bank of Ghana cyclical forex swings and the cycles observed at the commercial bank level renders any attempt to use the central bank’s meagre reserves to stabilise supply-demand imbalances created by shifts in sentiment among private sector market participants no longer viable in Ghana.

Bridging and Swapping Galore

A further factor worthy of note is the role played by bridge and swap facilities in smoothing liquidity bumps in periods when the country has access to the Eurobond window. These secretive arrangements involve significant flows of forex that have a real effect on local supply. In 2015, these short-end mechanisms yielded over $2 billion spread helpfully across the year.

Source: Bank of Ghana

By 2020, these sources were generating nearly $5 billion in forex value. The Bank for International Settlements, for instance, supplied $3.2 billion in bridge facilities in 2017, $1.5 billion in 2015, $1.6 billion in 2018 and $800 million in 2019. In 2020, the amount picked up again to $1.3 billion. The unscrutinised nature of such bridge and swap facilities (often bundled with the omnibus “international capital market program” and negotiated quietly, away from the prying eyes of parliament) mean that their volatilities are not all that well understood by the broader market.

It is intriguing that in the most recent year that Ghana witnessed a sustained depreciation episode, in 2019 that is, a number of negative shocks can be seen to be operating in tandem in the data. First, we witnessed a halving of forex flows through the commercial banking window. Next, a significant decline in bridge and swap deals. Before a raft of countervailing measures, such as a large Eurobond issuance, took hold, Bloomberg reported the Cedi as the worst performing among 146 tracked currencies worldwide that year.

A stronger tide of similar negative shocks are currently rippling through the commercial banking forex corridors but this time around the country is unable to depend on the Eurobond market for relief. Of course, a vicious cycle then ensues as the liquidity pills of swap and bridging facilities have also, in keeping with their strong correlation with large debt issuances such as those available in the Eurobond market, run short.

In these circumstances, where monetary policy has become accommodating of considerable fiscal recklessness leading to runaway inflation, and private market participants are thus exiting Cedi assets into the refuge of the dollar, the extent of imbalances, given the size of the commercial bank segment of the forex market as described above, and the dwindling capital receipts in the Bank of Ghana corridor, can no longer be addressed by small inflows that merely serve a signaling effect. Unless expectations improve on account of an improved inflation and investor confidence picture.

Afreximbank & Cocobod Facilities

Which discussion brings us to the issue of the Afreximbank and Cocobod facilities that the government has, with customary spinning skill, hoisted as its victory banner over speculators.

Afreximbank is one of the government’s recent partners in its swap and bridge programs. In 2018, Afreximbank offered Ghana a $300 million facility. In 2019, because of the headwinds in the economy, it followed other counterparties in lowering its provision to $150 million. In 2020, it didn’t bite at all. It is curious therefore that in seeking for a facility to signal capacity to intervene in the market, the government had to resort to a project-financing facility from Afreximbank of the sort that it took to Parliament.

Regular readers of this blog will recall that we have in previous commentary questioned the suitability of milestone-tied financing for the kind of signaling interventions the Bank of Ghana is engaged in. As it turned out, the highly provisional term sheet presented to the relevant committee of Parliament was merely cover for what looks like a separate and undisclosed contractual arrangement not available for scrutiny. The government now insists that it has received the project financing in full. Uncharacteristically, Afreximbank itself has remained silent about the facility and its disbursement. The Ghanaian case is more similar to a series of transactions in Zimbabwe that are now the subject of a lawsuit. And less like other project deals that Afreximbank tends to widely publicise. Afreximbank has been known to drive a tough bargain where it is clear that its resources may be put at risk, as evident in recent strained dealings in Swaziland.

To the extent that the Afreximbank – Ghana deal is shrouded in considerable murkiness and opacity, there is little more that can be said except, as repeatedly explained, its total insufficiency in making a dent in the serious forex shortfall situation in Ghana today unless and until confidence is restored to the bulkier commercial bank end of the market.

Regarding the Cocobod pre-export financing facility, the issues are more straightforward. The historical disbursement rate has been in the $600 million for the first tranche, and not the $910 million the government insists will arrive in October.

Source: Bank of Ghana

Given major shocks to output in the Ghanaian cocoa sector, and Cocobod’s heavily deteriorated finances, it is not clear why the government believes that the banks would consent to such frontloading. But, here again, as with the Afreximbank facility, there may well be undisclosed factors that make determinative analysis impossible. It is also important to mention that in recent years there appears to be parallel flows of forex linked to cocoa separately from the pre-export financing facility itself amounting to roughly 30% of the total receipts. The fact remains however that out of a total $1.3 billion facility secured in 2020, only $860 million was eventually disbursed. In the course of 2021, disbursements again fell short despite a much celebrated $1.5 billion raise.

The meat of the matter

In the final analysis, all things considered, neither the opaque and assumed $750 million Afreximbank injection nor the $600 million to $910 million likely to flow from the Cocobod facility in October can defend against the tides should trading in the private markets continue to be driven by negative sentiments about inflation, loose monetisation of the still outsized fiscal deficits, and the willingness of the government to credibly rein in expenditure. Together, they amount to $2 billion if disbursed fully. Ghana’s forex market has in recent years easily absorbed $40 billion. The Cocobod-Afreximbank injection is thus a mere 5% of total throughput. In extreme dislocation scenarios, $12 billion swings have been observed. A $2 billion blip on the radar, with noisy speculation also bubbling in the background, will thus barely make a beep.

So long as the government’s announced fiscal consolidation plans do not show any clear evidence of a selective default on wasteful obligations, of a sincere and serious spending review, nor of adjustments to spending beyond the perfunctory cuts to discretionary funding that per this author’s analysis do not even amount to 2% of discretionary spending, the government’s signaling will fail. The Cedi will continue to suffer acute bouts of depreciation, with periodic relief proving short-lived, until government’s actions start to match the rhetoric. Recall that the government’s public pledge is to cut 30% of discretionary spending. It should start by at least redeeming it.

Unfortunately for Ghana, investors and other private market participants are by their nature less swayed by spin than by action.

As I write this, members of the Bank of Ghana’s Monetary Policy Committee (MPC) are huddled together poring over the dire numbers of Ghana’s ongoing economic tragedy.

Five of the seven members of the committee are basically just senior executives of the Bank of Ghana: the Governor, his two deputies, and two key management lieutenants. The other two are appointed by the BoG’s government-dominated Board. Essentially the same people who have been running the day to day and two friendly economists favoured by the ruling government are having an “emergency meeting” on matters already in their purview, hardly the stuff of disruption.

But there is a quality of the surreal about this whole panic. Ordinarily, the Governor of the Bank of Ghana (BoG) and his MPC deserve our sympathy. Even though we analysts frequently criticise the MPC for its continued refusal to publish minutes of its meetings and disclose the exact positions of members. And though we cannot easily forgive its failure to make public the actual forecasting and evaluatory models it relies on to guide its rate-setting, we always cut it some slack.

We are moderate in our expectation of the BoG’s success in maintaining inflation between its 6% to 10% target band (with a preferred median of 8%) because we agree with the economists who attribute the country’s inflationary and exchange rate problems to something called, “fiscal dominance”.

Credit: Landefek (Blendspace)

Fiscal dominance crudely means that whenever the government is hard up it is unable to rely on increasing tax revenue. It then resorts to measures that forces the monetary authorities (eg. the central bank) to give up on its targets and strictures.

Historically, high government debt in a context of low capacity to increase tax revenue quickly, as is the case in Ghana, has been associated with increased money printing (some of which is then lent to the government by the central bank), financial repression, and various ways of gaming the government securities markets (such as the recent revelations of sweetheart repo deals by the BoG to incentivise some banks to hold on to government securities).

In the current circumstances of fiscal dominance and attempts at financial repression in Ghana, it is not surprising at all if inflation hits 32% instead of the central bank’s targeted 8%. The tools available to the BoG are being used to favour inflation rather than to bring it down because of the central bank’s weak operational independence. Because the government has also chosen at this time to infuse sentiment-dampeners, like the poorly designed e-Levy, into the economy at this sensitive moment, a true “stagflation spiral” has been triggered, throwing all crisis management out of gear. Raising rates will crush ground growth further, but doing nothing will make the inflation hawks scent blood. What a bind!

Credit: Abey Francis

Where we cannot so easily pardon the BoG is its seeming enthusiasm to reinforce wrongheaded government narratives that are all about PR signaling and very little about reality. By applying a veneer of “technocratic credibility” on the government’s strategy of sheer spin over substance, it has become an enabler of the continued postponement of hard decisions in the hopes of a miracle. Our main charge-sheet is the latest BoG release urging calm because it is at work steadying the Cedi.

Let us tackle each of the seven remedies it claims it is applying to the Cedi’s woes.

Gold Purchase Program to increase foreign exchange reserves.

So far all we have is an opaque program in which the government has without any merit-based competition selected a so-called “gold aggregator” from which it intends to buy crude gold, have it refined and stored as a reserve asset. No information as to which company exactly this is, what price indexing formula exactly is at play or the volume commitments.

It is important to emphasise that the BoG does not intend to back any portion of the Cedi supply with gold. This is not a partial replay of the gold standard. So, effectively, it will simply seek to convert printed Cedis for gold. This will hedge the BoG’s own holdings against Cedi inflation but it does nothing to actually address demand for forex or the market’s jitteriness about holding Cedis. In fact, gold producers will seek a counter-hedge against the Cedis they are provided, limiting the exchange volumes involved, seizing up liquidity over the long haul, and bringing everything back to square one.

Unless, the BoG intends to become a major active speculative trader in gold to build its dollar reserves, there is virtually no significance to this policy at all as far as the Cedi’s stability is concerned. Zimbabwe recently abandoned this same bullion-reserves approach, despite at one point hoarding the world’s second largest stash of gold reserves, to focus on getting its citizens to shift from forex to gold coins as a store of value, a somewhat less fraught but equally dubious proposition. Whilst there are channels through which such a policy can impact positively on small-scale mining as a separate objective, research suggests considerable obstacles.


Special Foreign Exchange Auction for the Bulk Distribution Company’s (BDCs) to help with
the importation of petroleum products.

Our inquiries in the downstream fuel market indicate that the BoG has been steadily reducing its supply of forex to the BDCs. Some respondents report a sharp decline from about 30% of forex demand being met in the official BoG window in May of this year to roughly 10% today. It is totally disingenuous for the BoG to create the impression that it is meeting the demand of the BDCs.


Bank of Ghana gold buying cooperation agreement with mining companies

It is not clear how this should differ in effect from the shady/opaque “gold aggregator” approach to bolstering bullion reserves discussed above.


• The Bank of Ghana forex liquidity support to commercial banks

Here also, as with the BDCs, our inquiries in the industry point to massive undersupply.

• USD750,000,000 Afrieximbank Loan Facility
As previously explained, Ghana has not really entered into a loan agreement with Afreximbank. Unless the government signed a secret agreement and only sent the term-sheet to Parliament for approval (a patent illegality), the only documents that were placed before the full Parliament were term sheets opening the door for the negotiation of substantive loan agreements.

There are major factors acting against the swift injection of Afreximbank funds, for which reason it ought not to be treated as an emergency support facility but a complementary bolster for another, true, emergency liquidity injection scenario.

I. A final agreement needs to be completed and approved by the Board of Afreximbank. This usually takes time.

II. The Ukraine Crisis Adjustment Trade Financing Program (UKAFPA), which is the specific Afreximbank program Ghana aims to draw on, was designed to fund simple purchases of commodities meant to be resold so that Afreximbank can get its money back relatively quickly. It is primarily an export and tourism stimulant facility. It was not originally intended for balance of payments support in the traditional way. The UKAFPA is still in fund raising mode and as at last checks was yet to appoint a Fund Manager. Ghana’s request for $750 million for road projects are somewhat misaligned with the program’s objectives and as such may require further work to secure all the necessary approvals and ensure successful matchmaking with ultimate lenders.

III. The UKAFPA is currently oversubscribed, with African countries having requested $16 billion from a total package of $4 billion. Ghana is thus in stiff competition for disbursements.

IV. By choosing to use roads as the basis for borrowing, Ghana has guaranteed longer due diligence intervals between disbursements. Each disbursement will require ESG sign-off, which tends to be more onerous for physical infrastructure compared to traditional trade finance. The erroneous impression that all the $750 million will come at once amounts to an unnecessary inflation of hopes. It should normally take years to disburse road project funds. Even if fast-tracked, it is hard to see how the entire $750 million can be disbursed within three months. Meanwhile, Ghana literally needs money tomorrow, and in much larger quantities than $750 million.


• The Syndicated Cocoa Loan Facility

It is historically true that the annual syndicated cocoa loan facility has been a major booster for the Ghana Cedi in its usual cycles of lows and not-so-lows. This time however there are formidable obstacles. Ghana’s cocoa crop continues to fail due to disease and poor supplies of subsidised inputs farmers have come to depend upon. Liquidity challenges have led to many of the country’s licensed buyers struggling to deliver the right quantities on time for export. Ghanaian deliveries have become unreliable in the international market leading to some frustrated contracts. All these factors are constraining disbursements even from the existing receivables-backed facility. At any rate, it would be many months before Ghana can expect any forex influx from the new facility.

• IMF Program

As everyone now agrees, Ghana’s current fiscal challenges are worse than they were in 2014 when Ghana applied for its last IMF facility (the 2020 general disbursement was not a real program). Even so, it took 8 months for the country to jump through all the necessary hoops to close a program. Considering that Ghana is yet to even submit its Letter of Intent, much less complete an updated debt sustainability analysis, and agree on the shape of a program, there is really no way for an IMF program to commence in less than three months. Even if a substantial amount of the money is frontloaded, IMF programs are milestone-driven. Worse, Ghana is focused on PR signalling and spin rather than doing the substantive work. For example, it has failed to explain why it believes it deserves double ($3 billion) of what its quota should entitle it to and why increasing the amount it intends to obtain at one go should do anything to speed things up. That is of course not to say that $3 billion is an unrealistic ask, but to emphasise that the more IMF funds are at risk, the stricter the scrutiny of the IMF Board.

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In short, none of the measures the BoG is trumpeting can address the Cedi’s serious woes in the short-term, which is to say within the next three months, which most analysts believe is the crucial horizon. When a currency loses roughly half its value within a couple of months, prudence will call for real emergency provisions, not spin. Yet, so far, the government has not disclosed a credible short-term remedial strategy. Thus the posturing of the BoG as if there is indeed a short-term response underway is both delusional and dangerous.

As a matter of urgency, the government needs to explore a truly short-term forex commercial loan that is NOT project-tied and one which could be disbursed within the next three months. It should rework the Afreximbank facility as well as the one with the three commercial banks to ensure that they are consistent with an emergency funding scenario.

Above all, the government should stop the PR signalling and take substantive decisions on true cuts to discretionary spending since no short-term forex facility at this point will be of a decent enough size to make a real dent in the $4 billion forex shortfall facing the country. This means an independent spending review by a credible team of external auditors. It also means selective defaults on government obligations tied to programs delivering low or no value such as the various Kelni GVG related contracts, the wasteful IT projects at the Electoral Commission and the discredited flagship program expenditures related to IPEP, 1V1D, and the various so-called “special initiatives” at the Presidency.

It betrays a serious lack of sincerity and seriousness about addressing the ongoing crisis when the only spending areas the government can conclusively point to for cuts are travel and meetings. Areas barely amounting to $15 million even assuming 100% successful execution of claimed cuts.

In fact, the total spending adjustments in the government’s mid-year budget amount to just about $220 million on net when the nation is confronted with a $5 billion fiscal hole.

If the Bank of Ghana is unable to join the rest of us to ramp up the pressure on government to take the crisis seriously and embark on credible short-term remedial strategies, it can at least do all of us a favour and just stop bloviating. Ghana is past that stage.

Interacting with the Press on 9th August 2022, the Director-General (DG) of SSNIT, Ghana’s public pensions operator, provided some numbers to help the discussion about the economic benefits of the Ghana Card, the ID system the government wants to underpin all public services.

In the DG’s estimation, in the event that SSNIT is able to enroll all the 8 million Ghanaians in the informal and formal sector who are currently not contributing to the Scheme, and if those persons happen to have Ghana Cards, then SSNIT would not need to print 18 million cards (for each of the 8 million new members and a survivor each of all 10 million members). Since in SSNIT’s world the cost of each card is $7, then the savings to the pensions giant will be $126 million.

This is a very hypothetical and optimistic analysis. From the time SSNIT was founded in 1972 to the present, it has never seen a 100% working population coverage. In fact, it has never crossed the 20% mark. To tie expectations of cost savings to such an aggressive prospect is rather strange. At any rate, even if we accepted the “$126 million over 10 years” argument, the arithmetic will still yield $12.6 million a year, not the $30 million the government has announced. So where exactly did the $30 million number come from?

But that is not even what is most wrong about the analysis.

First and foremost, the $7 cost per card figure is NOT the cost solely of producing and printing a physical card. It is the cost of everything about the card. From card production to printing and biometric enrolment. We have yet to even consider indirect costs like datacenter construction, software and system configuration. Separate from the direct and indirect card costs as provided in the preceding are the ongoing administrative costs of personnel, systems upgrade, cybersecurity and data management.

An overview of cost buildup for a national digital identity system.
Credit: Clark, Chanda and Wolfe (2018) / World Bank

A blank polycarbonate biometric 256-kb smartcard (the Ghana Card has a 148kb chip with three main applets) and its printing alone, in the volumes we are talking about here, costs less then $2.30 per card, that is: less than 30% of the direct cost of the SSNIT ID card solution on the open market. From the above diagrams, one can infer easily the lower contribution of direct costs to total costs.

  • So, should SSNIT decide to halt further card production (as indeed it has), the cost saved per year for new active members will be $2.3 x number of new active enrollees. In recent years, SSNIT has seen active membership grow by less than ten thousand individuals a year suggesting that total savings will be in the region of $23000 per year ($2.3 x 10,000), quite a distance from the $30 million figure in the press.
Extract from SSNIT Annual Report

Obviously, even if because SSNIT members no longer need a physical card from SSNIT (due to use of the Ghana Card), SSNIT no longer has to incur the costs of printing new cards every year, the fact remains that it must spend considerable sums on all the other aspects of membership management. Pensions management naturally has its own workflows, processes and mechanisms to which any identification mechanism must be customised. Thus, SSNIT is not going to be relieved of those identity-related costs such as data management, linking of identity profiles to individual policies, card readers to verify the Ghana Cards submitted etc. These being the costs forming the bulk of SSNIT’s “total cost of ownership” of any digital identity solution it needs to do its work.

Considering that SSNIT’s total annual operational cost is in the region of $40 million per year, savings of $30 million would suggest that identity management of subscribers alone has been or should be absorbing 75% of all expenditures, a wholly inconceivable notion. In fact, after accounting for compensation, administration, goods purchases and services, SSNIT barely has even a million dollars to invest in subscriber experience services as a whole. No wonder then that it has struggled for years to produce these cards.

Extract from SSNIT’s Financial Disclosures

Nor should it escape readers that a physical ID card is really not essential once biometrics have been collected and stored. Just the membership number of the subscriber and their fingerprint or iris scan are all that one needs for sound identification. Are these then redundant savings?

Why bother correcting the “multimillion dollar savings” narrative though? Because it obscures an important aspect of the Ghana Card that most people don’t understand.

In actual fact, were one to properly understand how the Ghana Card has been designed, it should become clear that SSNIT will actually NOT SAVE ANY MONEY AT ALL.

The reason is the way the public-private partnership between the National Identification Authority (NIA) and the private investors (IMS) was designed. The agreement envisages the government of Ghana guaranteeing a 17% annual return on investment to the investors. With total lifecycle investment pegged at $1.2 billion, the Ghana Card is expected to yield tens of millions of dollars in revenues in order for the government to clear its now mounting debts to the private investors. Because virtually the entire high-end technology stack was provided and is still maintained by topflight technology vendors in the United States and Europe, the private investors have been piling up costs from day one.

A 17% Return-on-Investment (RoI) is however a steal! Few industries report such benchmark average RoIs for deals.

Source: CSI Market (2022)

In short, SSNIT is expected to pay through its teeth to use Ghana Card services for authenticating its subscribers. The original PPP business plan actually anticipated fees from SSNIT to the NIA and its private partners to the tune of tens of millions of dollars every year, money that SSNIT simply does not have. The current merger of SSNIT data with NIA data and subsequent creation of data stores at the Bank of Ghana facility hosting the Ghana Card datacenter is merely the start of a process. The next steps involve finalising the full range of services and associated fees that SSNIT is required to pay NIA so that IMS and its own private contractors can be paid.

If the original NIA-IMS Ghana Card business plan is anything to go by, then one can rest assured that in exchange for saving about $23,000 annually in new card printing, SSNIT should prepare to pay in the range of about $0.05 to authenticate each subscriber everytime it needs to identify them as part of its service provision. These costs could easily rack up to several millions of dollars per year. The problem of course is that the Ghanaian public institutions whose fees are expected to fund the hugely expensive Ghana Card platform – NHIA, SSNIT, DVLA etc – are seriously cash-strapped themselves. A fact that puts the entire financial sustainability of the Ghana Card at risk over time.

With all these factors at play, it is fair to ask again: where did the $30 million savings number come from? A cynic may think that the figure was dropped into the public domain as a way of softening the ground to justify large fees from public institutions to private Ghana Card contractors.

After emphatically rejecting the IMF as a source of relief from Ghana’s escalating economic woes, the Ghanaian government stunned observers with its abrupt announcement of a U-turn.

It is not just that the Ghanaian authorities were disinterested in an IMF solution, they invested significant amounts of political capital undermining its suitability. They accused the Opposition party of having gone to the IMF in 2015 solely because of “mismanagement”. Today, government spokespersons delight in speculating about the big bucks about to flow from the IMF’s gilded funnels. And the even bigger bucks the IMF imprimatur would unlock in the more lavish capital markets.

Ghana has currently borrowed up to 182.5% of its quota from the IMF. Its room for additional borrowing in normal circumstances is thus about 250% of its quota. But it wouldn’t normally be allowed to borrow more than 145% of its quota at one go under the ECF/EFF/SBA arrangements that it has been eligible for throughout its history with the Fund. In dollar terms, it means that Ghana would ordinarily expect not to be allowed to borrow more than $1.45 billion at any one moment.

Ghana’s eligibility for $1.45 billion (or even more at the discretion of the IMF Board) compared to the $918 million received in 2015 is due to the doubling of the country’s IMF quota since then as a result of an expanded economy. The Ghanaian authorities have hinted at an interest in securing even more because in 2015 the country obtained 180% (instead of 145%) of its quota. The same quota multiple as was used in 2015 will entitle Ghana to some $1.926 billion of IMF money.

As my remarks below will attest these are significant sums in Ghana’s current conditions. But just a short while ago, some Ghanaian pundits and ruling party affiliates were calling such amounts, “peanuts”.

It would have been obvious to the government and the ruling party that embracing the same IMF that they had spent months associating with gloom, doom, shame and insignificance would seriously shake the confidence of even their most ardent supporters in their own grasp of economic policy. So why then did they do it?

The official explanation trotted out by many leading party chiefs and government officials is that up to the time a series of emergency cabinet discussions and meetings took place in late June, no decision had been taken whatsoever to abandon the hardline stance against the IMF in favour of “homegrown” fiscal consolidation policies (such as the 20% “across the board” cut in expenditures) and novel revenue measures (such as the e-Levy).

The Information Minister, in a number of press engagements, told the public that it was during a review of revenue numbers, especially in relation to the underperforming e-Levy, in late June that the IMF decision crystalised. Never mind that for months every serious analyst in Ghana had been branding the e-Levy targets as unrealistic.

In fact, up to a few days until the announcement was made, the government’s posture was that a decision was yet to be taken, with everything hinging on a review of revenue data still flowing in.

A careful analysis of the facts and developments following the downgrade of Ghana’s sovereign ratings in 2021 would show however that this picture of a climactic decision based on sudden and overwhelming data is inaccurate.

As early as late April 2022, the country’s economic managers had become aware that the only serious door still open was the IMF one. The continued downplaying of the IMF, hyping of the e-Levy and trumpeting of a “homegrown” fiscal remediation plan were all in hopes of a miracle. They were spectacles not in service to any carefully laid out policy-based strategies but rather in the forlorn hope of influencing the narrative about Ghana and hopefully triggering some kind of bonanza from some impressionable quarters. IMF inevitability merely prevailed in the end.

The above conclusion stems from an analysis of various factors. Including an evaluation presented below of the only “serious” documents the government has been able to present to Parliament as the fruits of a momentous struggle since September 2021 to access the international loan/capital markets. Let us examine the two documents in turn.

Afreximbank Facility

The pan-African development bank, Afreximbank, announced its “Ukraine Crisis Adjustment Trade Financing Programme for Africa” (UKAFPA) in early April after its board approved the facility on March 31st, 2022. Ethiopia, Nigeria and Ghana were among the earliest countries to express interest and commence engagement.

Given the typical sources of Afreximbank’s funds for these types of facilities, it was obvious from the start that facility managers would seek to align the UKAFPA’s credit and risk management with the yardsticks of the big multilaterals, particularly the IMF and the World Bank.

It is not surprising then that the Ghana – UKAFPA agreement laid before Parliament on 8th June 2022 is replete with caveats indicating clearly that without an IMF deal, consummation is literally impossible. Recall that this was weeks before the official IMF U-turn announcement.

Because the agreement is merely a letter of intent outlining the broad “heads of agreement” on the basis of which an actual agreement could be signed in future for Afreximbank to then attempt to raise “between $500 million and $750 million” for Ghana, it is instructive that the IMF elements are some of the most emphatic terms in the document.

Right from the outset, it is made clear that the agreement entitles Ghana to no assurance of money being raised. Any such raise would be subject to a future agreement following satisfactory due diligence, no deterioration in Ghana’s financial circumstances, and, most important for our discussion here, the receipt of satisfactory documentation.

Regarding the documentary prerequisites, the Agreement anticipates receipt of the government’s Letter of Intent to the IMF within 30 days of submission. Some of the “conditions precedent” give strong hint of the expectation of facility disbursement to align with some kind of multilateral supervision and control regime.

Extract from Ghana – UKAFPA Letter of Intent

A careful analysis of the Afreximbank Letter of Intent submitted for ratification to the Ghanaian Parliament therefore allows no other conclusion except the following:

A. The government had only the most tentative prospect of borrowing internationally in dollars to shore up reserves and, by implication, the local currency (the Cedi). The Letter of Intent had a long list of prerequisites and conditions precedent before a formal agreement could even be reached. Thereafter, everything was dependent on the success of Afreximbank actually being successful in placing the deal. It would be months before any money might arrive at the Bank of Ghana. The impression created in recent weeks of Ghana having viable alternatives to both the Eurobonds market and the IMF in meeting its dollar needs was thus simple acts of image laundering. The only deals in hand were tentative, early-stage, prospects.

B. Even these tentative deals were, carefully analysed, significantly premised on government of Ghana returning to the IMF and observing a supervised fiscal consolidation program.

C. There was no prospect of funds being released in lumpsum as the country has become accustomed with Eurobond placements. The money, if it ever comes, will go to specified projects and will be released based on the satisfactory progress of those projects.

Extract from the “representations” section of the Afreximbank Agreement

These terms are generally mirrored in the second agreement (also a tentative letter of intent) laid before Parliament outlining broad terms of engagement between the government of Ghana and three banks: Standard Chartered, Standard Bank and Rand Merchant Bank.

Syndicated Loan

The fact that after starting off with a target of $750 million the government eventually had to settle for a $250 million facility, of which only $205 million would actually be disbursed (the rest being swallowed by costs) is itself quite telling.

So dim were the lenders’ view about Ghana’s finances that they demanded insurance. But so serious was the credit risk from the lenders’ point of view that the insurance and reinsurance structuring became protracted, eventually leading to a reduction of the loan amount from $750 million to $250 million.

Here too, the prospective financiers were demanding that government secures ratification of the Mandate Letter in Parliament and meet an extensive list of conditions precedent. Any future facility agreement would also need to be brought to Parliament before the three banks would have the full comfort to raise the $250 million and start disbursing the actual loan amount of $205 million. The funds in this case also will go to specified bankable projects (not to general budgetary support). Once again, it would be months before Ghana sees any money.

Extract from the Syndicated Loan Mandate Letter

The costs of these deals, because of the strict and comprehensive insurance requirement (a sign of how wary the lenders were about Ghana’s finances) added significant cost margins beyond the interest rate. A crude summary is that to borrow just $250 million, Ghana had to be willing to sacrifice $45 million in guarantee costs. This is a country that barely a year ago raised $3 billion at one go with only the bare covenants that apply to all borrowers in the Eurobond market.

Ghana’s Short-Run Crunch

Given the tentative nature of the only loan agreements the government has been able to muster so far and present to Parliament, and notwithstanding reports of officials scouring all over the globe looking for deals, it is pretty clear that hopes of getting significant dollar credit injections into the Ghanaian economy before the end of the year are fading rapidly. The government had to beat a fast retreat to the IMF merely to preserve even these tenuous prospects. That fact raises serious challenges as the IMF process is not much faster than the Afreximbank or the syndicated lending arrangements.

Readers would recall that the last time Ghana did an IMF deal, the process was initiated in August 2014. It was not until April 3rd 2015 that the Board of the IMF finally gave approval. As some analysts have sought to point out, the economic conditions prevailing in 2015 were not as complicated as they are today. Below we reproduce in full the macroeconomic landscape summary table compiled by the IMF around the time of that facility’s approval.

Debt Sustainability Analysis for Ghana performed in 2015

The most important figures to take careful note of are the 2014 and 2015 debt service to revenue ratios. In short, how much of the country’s income was being spent then in paying interest and retiring principal? Versus now. In 2015, less than 35% of revenue went to debt servicing. In 2014, when the approach to the IMF commenced, the figure was just a little above 32%. Today, that number significantly exceeds 60%. In a first quarter of 2022, interest payments alone totaled $1.3 billion (10.6 billion GHS). Properly accounting for amortisation by accommodating the worsening inflation and exchange rate dynamics, would have meant nearly 70% of the 16.7 billion GHS ($2.1 billion) of revenue collected over the period going into debt servicing.

Even worse, the rollover risks of domestic debt have considerably worsened because of the pace at which international investors who not too long ago used to hold nearly 40% of Ghana domestic debt (in 2017) are fast exiting.

Per some projections, foreign holdings of Ghanaian domestic government debt will slump below 10%, having already fallen to around 16% by the end of 2021. When non-resident investors refuse to reinvest their proceeds from prior cycles of investment back into government securities, they typically buy forex and repatriate their money out instead of diverting it into other local investment options. The result is mounting pressure on the Cedi and the risk of government defaults (due to the collapse of the assumption that government won’t have to redeem so much maturing securities at the same time).

These factors, coupled with serious opacity about the true scale of the hidden subsidies and government liabilities in the energy sector, and to some extent the financial sector, have elevated the perception of risks around the government’s finances. Most analysts feel that the situation is even worse than the dire macroeconomic indicators (nearly 30% inflation and a near 30% year-to-date devaluation of the local currency) suggest.

In these circumstances, it could even take the IMF longer to align with government on both a thorough diagnosis of the problem as well as the most effective set of solutions than it did in 2015.

Especially when in previous episodes of this same tango, the government simply refused to follow through with the agreed prescriptions and merely exploited the IMF program to improve its attractiveness to less rigorous lenders and then proceeded to binge heavily on expensive debt. Fearing that the very integrity of the IMF’s programs is at stake, one can only imagine the IMF spending more time trying to design smarter strictures around the government’s capacity to abuse the program. And we are not even factoring into the mix the unresolved issue of whether IMF bailout packages require Parliamentary approval. In 2015, NDC said they didn’t, NPP insisted, quite strenuously, that they did.

So if in relatively less complicated circumstances, it took the government 8 months to clinch a deal in 2014, one would be foolhardy to assume that the economy’s short-run cashflow problems are fixable by a quick IMF program. As we have reminded readers in previous comments, some African countries, like Zambia, have been waiting for an IMF deal for years now.

The current rollover challenges facing the government therefore require a massive and sincere spending review to cut non-critical spending in order to conserve resources to avert a default before a carefully designed debt restructuring of some sort commences next year. Any disorderly strings of defaults in any category of liabilities would only slow down the process of IMF engagement and reduce the overall utility of a program, as indeed we have seen in Pakistan.

The consistent consigning of the IMF engagement to “balance of payments” support in recent days however underestimates the broader structural issues involved in coming to a consensus on what need to be done. Ghana’s balance of payments situation is complicated by the fact that it is no longer driven primarily by trade. In fact, there is an ongoing imports collapse in the economy due to very high effective tariffs and a slowdown in broader demand. An artificial trade surplus has thus been manifesting for quite some time now.

Ghana’s collapsing imports. Source: World Bank

The current account imbalances confronting the nation are interlinked with persistent fiscal deficits and they both have their roots in three areas other than trade: massive debt servicing costs that can only be addressed by debt restructuring, a large public sector wage bill that can only be tackled through a fundamental redesign of the inchoate welfare state, and structural waste in procurement and capital expenditure born out of political patronage.

The only real room to make a short-to-medium term difference to the country’s dire fiscal plight is in moving aggressively on the third source of the current problem: patronage-driven spending waste. Doing so requires a sincere and independent spending review of recurrent expenditure and planned capital projects heavily tainted by political patronage.

Whether it is the abominable abuse of public funds at the Electoral Commission, the continued pouring of money down the drain through schemes like Kelni GVG or the so-called Smart Workplace project, these leakages are entirely within the control of the political class and frankly, should they go, no one else would miss them.

However, to the extent that politically connected people see benefits in them, they cannot be tackled by routine austerity measures nor is the IMF, in its current incarnation, in light of the collapse of the Washington Consensus, best placed to drive through wide-ranging good governance reforms. Yet, only a genuine commitment by the government to finally confront the structural waste problems will compel it to engage truly independent third parties to conduct the kind of spending review that will take the knife to the pork-barrel mess that procurement and capital project financing have become in Ghana.

Researchers like Malick Sy and Adela Mcmurray have identified variants of this “good governance enforcement gap” as a contributory factor to their “spiral of doom” analysis of IMF programs that fail to prevent countries from becoming addicted to bailouts.

The Spiral of Doom emanating from failed bailouts. Source: Sy & Mcmurray (2016)

So, whilst it would seem that the government has already embarked on some austerity measures to achieve a similar outcome to waste reduction, there are serious concerns about the tendency to gut social assistance programs simply because, lacking vested political patrons, they are easy pickings.

For example, there are 3.5 million beneficiaries of the School Feeding Program. Each beneficiary costs the program 12.5 cents a day. There are 185 actual school days in the academic calendar. In short, a seamless School Feeding Program would cost the country just about $81 million a year. Given the full privatisation of the scheme, there are hardly any administrative costs. Yet, the initiative has been saddled with perennial complaints of underfunding for years. This, in a country where the government has very few qualms about throwing away more than $60 million worth of electoral equipment in perfect working condition just to start over again so that crony contracts can be awarded to preferred vendors in flagrant abuse of procurement laws.

Now that it is becoming apparent that neither the IMF nor private lenders will dish out easy money to Ghana between now and the end of the year, the bleak situation the country and its government find themselves in, as they confront the real prospect of technical insolvency in the next couple of months, has been cast in stark relief. Would this rude awakening provide the impetus for reform that previous IMF programs and half-hearted homegrown fiscal consolidation strategies have equally failed to generate?

Will the people rise up to the true measure of citizenship and demand an end to patronage-driven waste? And will the leaders respond?

News on Republic day (1st July 1960 was when Ghana ditched Queen Elizabeth II as Head of State) that Ghana is to return to the IMF for the 17th time in its history hit some nationalists and pan-Africanists very hard.

Members of the country’s ruling party who have bought wholesale into the government’s “Ghana Beyond Aid” mantra were also stunned.

For weeks, dark jokes about “Ghana Beyond Aid” transmuting into “Ghana Beyond Help” have been circulating in financial circles. The country’s vaunted “homegrown solutions” seemed incapable of stemming inflation or the slide in the national currency, the Cedi. No remedy seemed to be working.

Even the eLevy tax on digital financial services that the government burnt precious political goodwill foisting on a highly hostile public appeared to be performing at only 10% of expected yield.

The truth however is that many of the reactions to an IMF program are driven by notions of IMF behaviour that have long evolved. The IMF of today is not the IMF of the 1980s. If anything at all, it is the constant linking of IMF programs with abject economic management failure by the ruling party that has made going to the IMF such a doomsday scenario. A more nuanced analysis of modern IMF mechanics can be found in my previous essay.

In this brief follow-up essay, I outline seventeen (17) key points for this 17th attempt to salvage the Ghanaian economy through an IMF program.

  1. Ghana waited too long to go to the IMF

Because of this delay, the twin debt-and-protracted-deficit crisis has become structural. Ghana is thus likely to qualify only for medium-term programs such as the Extended Fund Facility (EFF) or Extended Credit Facility (ECF). Both medium-term facilities come with higher conditionality than short-term and standby arrangements. In better circumstances Ghana could have qualified for a Flexible Credit Line (FCL) or a Precautionary or Liquidity Line (PLL). Were the problem strictly due to short-term shocks such as the Ukraine War and/or COVID-19 as the government insists, the IMF could also have offered a Rapid Financing Instrument (RFI) or a Rapid Credit Facility (RCF). Due to reckless overconfidence however the fiscal situation has deteriorated to a point where only an EFF or ECF is likely to be available.

2. IMF doesn’t like basket cases

Like every Lender, the IMF had rather not be dealing with a basket case. Ghana has for three years now been pretending that it is taking reforms seriously and that it has strong policies to address the issues that took it to the IMF in 2015. Instead, it has done very little to address weak institutions, poor spending choices and low public revenue growth. The wage bill continues to grow by nearly 15% year on year despite lip service to containment. The country has masked these weaknesses with lavish borrowing from yield-hungry local and international lenders. Evidence shows that countries with structural debt-and-deficit problems face more protracted negotiations with the IMF than those dealing with simpler balance-of-payments challenges.

3. Ghana has to brace up for the DSSI+ (Debt Service Suspension Initiative & its successors)

Between May 2020 and December 2021, the Bretton Woods institutions led a G20 process to offer temporary debt relief to countries struggling with their debt service load. Additionally, countries that qualified for the DSSI (it required a preliminary IMF program) were entitled to receive further support. 43 countries, many with far less onerous debt burdens than Ghana, benefitted from $5.7 billion in relief. Mysteriously, the Finance Ministry refused to allow Ghana to participate citing likely interference with the country’s commercial borrowing plans. Now that the DSSI window has closed, the government will be compelled to consider the G20 Common Framework. Chad, Ethiopia and Zambia recently asked for support under the Common Framework. The IMF’s attitude has been that these countries must apply the framework to structural reforms and not just debt service suspension or relief. Ghana may have to confront similar treatment soon.

4. The Hurdle of a “Staff Agreement”

 Because of the Finance Ministry’s dismissive tone, the country has yet to prepare the all-important “Letter of Intent”, in which it must detail all the policy actions it intends to take to realise the goals of any IMF program.

Below are the actions Ghana pledged to take during the 2009 to 2011 IMF (ECF) program timeline.

Note that the famous “hiring freeze” was already an element of domestic policy before the IMF got into the picture. It was government of Ghana which saw a slowdown in hiring as a means of “strengthening” the public service and embarked on it. When the time came to present a plan to the IMF in order to get their money and stamp of approval, the government said it would improve its implementation of the plan (because, as usual, the plan had up to then merely been on paper). It was not something the IMF sat in Washington DC to contrive and stuff down the government’s throat.

Readers also have noticed the government’s pledge to fix Tema Oil Refinery. It didn’t happen. Clearly, even with the IMF looking over its shoulder, the Ghanaian government routinely does not get done what it sets out to do.

Below are the highlights of the 2015 program agreement as well.

Readers could not have missed the provision in the 2015 program to conduct an asset review of the banks. Most readers would recognise the important role played by the results of that review in the eventual effort to finally tackle the serious insolvency plaguing parts of the Ghanaian banking industry. One has to wonder why it has to take an IMF program for the authorities to deal with clear and obvious dangers.

A similar letter of intent now has to be prepared to commence the IMF dance. It would be reviewed jointly by the IMF’s country team, other analysts in Washington DC and the government’s own negotiators. The final details will make their way into a Memorandum of Understanding (MOU), which will in turn detail the agreed performance targets for certain important macroeconomic phenomena as well as ceilings and floors for certain borrowing and spending activities of the government. Furthermore, the MOU will detail the disbursement schedule of any approved funds and what will trigger release. In past engagements with Ghana, IMF programs have nearly lost credibility because agreed targets and timelines have not been met as agreed. Because the MOUs also entitle the IMF to receive periodic data updates about a host of things, failure to report accurately and timeously can also cause friction. In 2018, when the last IMF program was in force, the government lied about its external arrears and was forced to write a humiliating apology.

In short, getting to the MOU stage (often called a “Staff Agreement”) entails clear commitments by the government to corrective actions that can address the scale of the challenge facing Ghana. It goes without saying that the bigger the challenges the bigger the commitments to reform the government must make and thus the higher the likelihood that IMF respondents might feel that promised actions do not go far enough.

5. Even a Staff Agreement is not the end of the road

Even after hammering out the terms of an MOU, the Board of the IMF still has to approve. Even after a program agreement is in force, disbursements may need further board approval. Kenya for instance is still waiting for board approval after IMF staff signed off on a disbursement in April. The IMF board, like all boards meet at scheduled intervals to address tabled matters.

6. Ghana needs a shorter-term remedy besides IMF

There have been reports in the banking industry of the government writing to lenders and holders of guarantees to provide extensions to timelines for due payments. The liquidity crunch facing the government is now so intense that this IMF announcement appears to have been made principally to give comfort to dithering prospective short-term lenders. The government has been chasing syndicated loans from commercial banks for a while now. Some of these banks have begun getting cold feet. Some have quietly told the government that an IMF agreement would make lending more palatable. This sudden u-turn in favour of IMF program is thus an attempt to seduce commercial borrowers. It would be wise for the government not to underestimate the markets and start looking for alternatives in cuts to discretionary spending. Equally daunting is how the government can sustain domestic debt servicing in the short-term without central bank financing. Current liabilities falling due this quarter significantly outstrip revenues. Analysts insist it is crunch time.

7. The more broken an economy the longer the IMF negotiations.

Once a country waits till it is desperate before reaching out to the IMF, its situation takes on a character that cannot easily be fixed by medium-term liquidity improvements or even by restored access to the capital markets. Ghana has a credibility issue right now. It is not clear if it genuinely wants to reform its fiscal culture or merely wants a quick fix to restore access to the capital markets so that it can restart its borrowing spree. Recent IMF negotiations with countries like Sri Lanka shows a serious cynicism on the part of the Fund about these kinds of quick fix strategies because of its impact on the credibility of the IMF itself.

8. Ghana should be prepared for the possibility of protracted negotiations

Whilst the IMF has given a lot of hints that it would want to do a deal with Ghana, appetite for a deal is not enough. Even when an agreement is in hand implementation can be bogged down by policy and program disagreements, as has been the situation with Ethiopia since approval of a $1.5 billion program by the IMF Board in 2019. Similar issues have disrupted the $6 billion Pakistani program. It is noteworthy that Zambia continues to have program initiation challenges despite talks with the Fund dating from 2016.

Researchers have tracked the time it takes the IMF, historically, to intervene in an ongoing financial or economic crisis. They have come up with an average of several months even for the relatively more straightforward standby agreements. Ghana’s year-long dilly-dallying fits this pattern.

IMF Response Time Analysis. Source: Mody & Saravia (2013)

Once a Letter of Intent has been submitted by an IMF member state however (usually based on informal understandings reached with country staff), the decision speed improves considerably. Lauren Ferry and Alexandra Zeitz have computed an average of 115 days from commencement of negotiations to approval but a mere 20 days from the submission of a formal request to approval by the IMF Executive Board.

Most researchers report a strong correlation between the strength of a country’s United States (US) and European Union (EU) relationship and the speed of approval. Ghanaian foreign policy analysts generally rate current US – Ghana relations to be relatively less robust but fine enough. EU relations, on the hand, have been generally stable over a long stretch.

Tracking IMF Program Decision-making Timelines. Source: Ferry & Zeitz (2021)

9. A Staff Agreement requires Ghana to accept facts it keeps resisting

A factor likely to influence the smoothness of Ghana’s IMF program initiation is the alignment between the Fund’s view of the Ghanaian fiscal situation and the Finance Ministry’s. One can glean from the routine country visit reports (the so-called “Article IV consultations” underpinning the IMF’s global surveillance mandate) some inklings of divergence between the IMF and the Ghanaian government on the right way to measure Ghana’s true debt position and deficit trajectory, especially in relation to the treatment of so-called “arrears”. Any decision to leave the negotiations solely to the same Finance Ministry mandarins who refuse to grasp the full scale of public liabilities could easily complicate the negotiations. The President should ensure representation from other ministerial and Jubilee House quarters.

10. Clarity on non-concessional funding

One of the biggest stumbling blocks ahead in the upcoming IMF journey is the government’s continued wish to source expensive loans to maintain its dead-end course for as long as possible. The interest rates on these loans are crazily high. The IMF is likely to take a very dim view of them.

11. All the more reason to stem the bleeding now

If showing good faith to the IMF might require a moratorium of sorts on securing ridiculously expensive loans at a time when the government is in desperate need of hard currency to service its international payments obligations, then now is the time to take a hard look at cash sieves like Kelni GVG which continue to bleed Ghana of millions of dollars every month for very little demonstrated return. To date, not a single independent report (not one commissioned by vendors or government agencies directly involved) has established the true benefits of programs like large-scale medical drone delivery, telecom revenue monitoring, fuel marking schemes and assorted government-driven ICT initiatives.

12. A proper spending review is now required

It is apparent from provisional fiscal data that the promised 20% cut across all public expenditure announced by the Finance Ministry was more rhetoric than cold reality. Public spending is actually expected to keep rising over the next quarter. Such a drastic austerity program as promised could not have been implemented anyway without a proper spending review conducted by truly independent-minded people in government. Unless the government is willing to cut loose pet projects of favoured officials and their cronies, such a spending review cannot proceed in good faith.

13. A spending review will have to take down ALL VANITY PROJECTS and perennial wasteful spenders

Should the prospect of an IMF program prompt a genuine spending review, courage would be required to take a knife to vanity projects like the flopped Liquefied Natural Gas initiative of the Ghana National Petroleum Corporation and various bungled flagship projects like One Village One Dam and One Million Cedis per Constituency etc. When a campaign was waged by civil society activists against the decision by the Electoral Commission to throw away nearly $70 million of perfectly sound infrastructure (including thousands of laptops that were then just over a year old), the government studiously refused to listen. Hundreds of millions of dollars have been wasted in a similar fashion across the government in support of various harebrained schemes.

14. Clarity on debt restructuring gameplan

Whilst the IMF announcement may have prevented another rating downgrade in the near-term, any prolonged delay in securing an agreement may actually trigger a downgrade. In a similar vein, whilst the initial reaction of investors to the IMF u-turn announcement has been positive, much of the sentiment is connected to hopes of an orderly debt restructuring deal with very minimal haircuts (cushioned with multilateral resources). Debt restructuring deals are very tough and time-consuming. Failure to present a clear narrative about strategy could easily turn expectations of a medium-term turnaround to fear of fiscal attrition and a disorderly default.

15. IMF toolkit is limited in scope and must be primed

The IMF’s toolkit for pre-emptive restructurings as a means of averting sovereign defaults is only viable with large doses of maximal transparency, sound tactical choices on reprofiling debt (even learning some lessons from interesting episodes like Belize’s), and a return to overall fiscal discipline.

16. IMF will not fix systemic governance deficits

Repeating any treatment for the 17th time cannot be an occasion for celebration. An IMF program is merely an opportunity to attempt a reset of specific fiscal dials. It does not transform national governance culture wholesale on any level. The eventual transformation of Ghana’s economy to one of sustainable growth and widespread prosperity cannot be delegated to technical interventions by international organisations.

17. The fight is still on the homefront

It shall only come about as a product of the nation-building struggle. IMF will come and go. It is not a savior from poor economic leadership. But neither should it be treated as a convenient scapegoat for homebrewed failures. The fight for true economic liberation remains that of Ghanaian citizens alone.

Long before there was Ghana, Achimota Forest was a sanctuary in which certain economic activities and despoilment were banned, and runaway slaves mingled anonymously among the sacred groves secure from recapture. It was the ultimate “retreat” from the sometimes-terrifying normality of war and politics.

The forest’s ancient religious connections are preserved today in its status as the largest outdoor Christian worship site, attracting as many as 250,000 worshippers in 2009, the latest year for which Forestry Service statistics are available.

Today, the site remains the only serious urban forest in Ghana, and the only major vegetation cover in the ecologically sensitive Odaw Basin.

The intertwining of Achimota woodland and the drainage blocks precipitating flooding in that part of Accra has long fascinated Ghanaian environmental scholars.

The interesting thing therefore about how it came to be that the only forested areas near Accra – Achimota and Guakoo in Pokuase – have such intimate links with worship and sacredness is not that religious beliefs can restrain people from destroying nature out of material greed. It is rather that the Ancients may have detected important environmental aspects of these locations and chose therefore to protect them through collective rituals.

It is not for nothing that the escalating flooding patterns on the Achimota – Pokuase stretch, two nodes sacralised by the Ancients and mutilated by modern-day Ghanaians –  appear to have overwhelmed city planners.

The Odaw Basin reclamation strategy has seen halting progress over the years. Image Credit: Gambeta News

For anyone who knows anything at all about the area, the context discussed above coloured the news this week that the President of Ghana has decided to reclassify a large part of Achimota Forest Reserve from remaining in that status because, under a law passed in 1927, he can.

 The portion of the forest reserve, created by the colonial British government in 1930 from a portion of land purchased from two Accra families, affected by the Presidential Order is described in the schedule to the Executive Instrument containing the decision as:

The President was not done, however. He then took a blunt scalpel to the original 1930 colonial order preserving the Achimota forest and with a few delicate strokes shrank it by two-thirds:

Stunned observers in Ghana’s small but significant environmental community could only assume that the action by the country’s Head of State was likely one of those political moves taken without sufficient research, analysis and consultation.

Someone with an obvious commercial interest had smuggled the decision into the hallowed chambers of the President who had proceeded to sign it without the barest amount of professional, impartial, advice.

To buttress the view that the President acted without sound research-backed advice, it is necessary to start at the beginning, and clear many confusions.

In the last couple of days, the Lands Ministry and certain motivated individuals have tried to muddy the waters by deliberately confusing the facts.

When in 1921 the British colonial government compulsorily acquired Achimota lands (and paid the necessary compensation) to the Owoo and Oku We families, the area extended far beyond the space caught in the current controversy. The lands in question totalled nearly 2000 acres.

Half of this land was reserved to build and nurture what would then become just the third secondary school in Ghana – Achimota School.

Nearly a decade later, the colonial government decided to restrict a part – approximately 825 acres -of the remaining half of that original mass of land as a forest reserve. The express purpose was to enhance biological diversity, offer recreational grounds to city dwellers and ensure the sustainable management of wood and water resources.

The Achimota Forest Reserve is completely separate from Achimota School Lands.

The continued confusion of this part of the original acquisition with other parts has been a great disservice to the public debate. The Nii Owoo and Oku We families have for the last two decades, along with persons claiming to be aristocrats of Osu, waged war not over the 43% of the original lands preserved as a protected forest area, but rather on the 57% endowed in Achimota school, large tracts of which have been converted to other public uses such as the building of golf courses and residential dwellings.

In fact, a series of cases associated with this protracted litigation began in 2010 and ended up in the Supreme Court in 2020 regarding the award of roughly 172 acres of Achimota School lands (adjoining GIMPA) to real estate developers and Osu stool claimants (aristocrats from the Osu area of Accra) by an Accra High Court in 2011 as a result of a litigation in which Achimota School was not even a party.

After exhaustively recounting the contorted twists and turns of the legal process that enabled the Osu stool to insert itself into the Achimota School lands saga, when it was not involved in the original 1921 transaction between the colonial government and the two families – Owoo and Oku We –, the Supreme Court reversed the award in May 2020 and sent the case back to a lower court.

Whilst this case was ongoing, the Owoo and Oku We families were also in parallel court processes trying to legitimise encroachment on Achimota School lands by real estate investors to whom they had sold parcels of the land from the School’s 1922 and 1927 colonial government grants. In 2017, judgment was delivered in favour of Achimota school.

Whilst these matters were in court, the government was busy negotiating with the two families. In fact, it appears that the Lands Commission was deliberately mishandling their brief in court in the parallel Osu stool suit because it was aware of how political heavyweights were interested in cutting a deal on the side with various aristocrats and real estate investors.

We now understand that in 2013 the government decided to enter into an agreement with the Owoo family in particular to parcel off some of the disputed lands. Whatever the original merit of that strategy, it was thwarted in the intervening period when courts of competent jurisdiction ruled that all these old families claiming title to Achimota School lands had no basis in fact or law.

The critical thing to bear in mind however is that none of these litigations, out-of-court settlements and government dispensing of largesse affected the forest reserve. These various matters, dissected critically, involved Achimota School lands.

Until the President’s recent action, the Forest Reserve properly speaking – spanning 825.887 acres – has generally been left out of the horsetrading

The sheer incomprehension of the President’s action to shrink the forest reserve and its adjoining area from 1,185 acres to 372 acres (a mind-boggling 70% scale-down) by means of Executive Instrument (EI 154) arises out of the excuse that the reclassification is related to a negotiation in 2013. As explained above, that negotiated outcome has since been frustrated in the courts, and at any rate was related to Achimota School lands and not the Forest Reserve. The reclassification is, on this simple basis, COMPLETELY UNTENABLE.

It appears to seasoned observers that the Oku We and Owoo families having failed to seize Achimota School lands in the courts have now turned their focus on the forest reserve and have colluded with the government to bring about this result.

It is not clear if such an action also has the additional effect of shielding Achimota School stakeholders from further legal harassment by the encroachers who have in recent decades stolen a whopping 33% of the School’s land. Now that a new zone of rich forest has been opened up for concreting, perhaps the 250 acres of Achimota School’s remaining untouched prime land will be spared any further horse-trading by politicians. But whatever the full range of motives, the new declassification and reclassification actions have no grounding in fact, policy, or law.

The fact may not be clear to some otherwise well-informed people, but Achimota Forest reserve is an International Union of Conservation of Nature (IUCN) category VI area. This means that it is not a totally restricted category I or II area; certain infrastructural developments in the area capable of boosting its overall sustainability are compatible with its category VI status. In fact, the eco-tourism park idea, conceived in 2013, was totally brilliant for this very reason. Executing that idea does not require declassifying any part of the land as forest reserve. On the contrary, it leverages the reserve status. Any investor interested in participating in the program would have been required to only propose developments compatible with the category VI status.

Across the world, urban forests like Ghana’s Achimota Forest, Kigali’s Nyandungu, and Nairobi’s Karura have all built eco-tourism park plans on the back of forest reserve protections. Investors are subject to constraints as to what they can build on such lands, but the corresponding tourism uplift usually compensates.

For example, Nairobi’s Karura’s forest reserve status dates back to 1932, just two years after Achimota Forest was likewise declared as a forest reserve. Karura has by and large preserved a protected area twice the size of Achimota Forest right in the middle of bustling Nairobi without any politician succeeding in their perennial quests to whittle down the area. Through an innovative partnership with environmental NGOs, it launched an eco-park concept in 2011, two years ahead of Ghana’s decision to follow suit. In the four years that followed, fees from visitors seeking various forms of recreation averaged around $200,000 a year. In the decade since Ghana declared Achimota Forest an eco-park, the authorities have struggled to collect even a fraction of Karura’s revenue in a good year.

Ghana’s 2013 Achimota eco-park policy has failed not because the area is still protected but because of a lack of political commitment (as evidenced by the horse-trading described above), underinvestment and sheer lack of innovative thinking.

All the above nonetheless, Achimota eco-park still held the promise of preserving the forest reserve status of the area. Until those two fateful days in March and April 2022 when the President of Ghana took his pen and decided to shave 70% off what even a colonial government had considered sacred.

Besides, notwithstanding the slow progress of the eco-park project, other strategic ecological projects have been ongoing well before 2013.

After it was decided that the Accra zoo in Kanda (originally built as a private menagerie for Ghana’s first President) was too close to the India-built presidential palace for comfort, the zoo’s animals were first relocated to Kumasi before a decision was then taken to reserve 120 acres of the Achimota Forest to serve as a new zoo.

An endangered primate breeding center was then set up in the vicinity to protect two critically endangered monkey species – the Diana Roloway and the white-nape Mangabey – from going extinct. There are bush babies in the forest that are not found elsewhere in the country and with proper warden services would have been carefully managed.

Even more intriguingly, a captive fruit bat species (Eidolon Helvum) in the vicinity is feared to pose a zoonotic threat (potential to transmit diseases to humans) if not handled with care.

Jennifer Barr and her collaborators concluded in a recent paper:

“The results from this study indicate Achimota viruses (AchPVs) are able to cross the species barrier. Consequently, vigilance for infection with and disease caused by these viruses in people and domesticated animals is warranted in sub-Saharan Africa…”

The “Achimota viruses” mentioned in the said study include Achimota Virus 1, Achimota Virus 2 and Achimota Pararubulavirus 3.

In short, no serious advisor with the right level of exposure to these critical matters would have advised the President of Ghana to tamper so rashly with the Forest Reserve. The 372 acres the government has left for the reserve are woefully inadequate to cover even half of the strategic requirements of conservation, watershed management, recreational zoo, biothreats research facilities, etc.

It bears mentioning that, according to researchers, it took 85 years from the time of the designation of the forest as a reserve for depletion of the forest cover to accumulate to 250 acres.

Despite suggestions that the forest is almost already gone, just about 12% appears to have severely degraded since 1991. Source: Tuffour-Mills et al (2020)

With a simple stroke of a pen, the government has sent nearly 800 acres more to that same ignominious end overnight.

Assurances that notwithstanding the massive scaledown of the reserve, all future activities shall be reviewed by the Lands Minister for ecological soundness simply do not add up. Even with the current legal restraints, multiple Judges have accused government actors such as the Lands Commission as deliberately working to aid fraudulent real estate operators to encroach on Achimota lands. How does lifting the reserve status, when the government has over the last several decades proved so incompetent in protecting the area advance the goals of conservation and public interest?

Mr. President, we want our Forest back.