Ghana’s financial sector clean-up and debt exchange shake investor confidence, economic stability – [Article]

In 2017, a newly elected government embarked on a sweeping reform of the financial sector, with the primary goal of purging it of instability and systemic risk.

This impact was not limited to the central bank; other domestic financial entities, such as banks and non-bank financial institutions, also experienced erosion in the value of their bond portfolios.

This complex outcome highlights the intricate balance required in debt management strategies, where the benefits of reduced debt servicing costs must be weighed against the potential destabilizing effects on the financial sector and investor confidence.

The Domestic Debt Exchange Program (DDEP), which included substantial haircuts on bond values, has particularly distressed the fund management sector

Ghana’s ambitious financial sector reforms and debt restructuring efforts highlight the complexities and challenges inherent in managing economic crises and restoring financial stability.

The government’s initiatives to clean up the banking sector and restructure domestic debt were essential in addressing systemic weaknesses and reducing unsustainable fiscal pressures

The domestic banking clean-up and the Debt Exchange Program, while necessary, led to extensive job losses, liquidity challenges, and a contraction in economic growth, exacerbating the financial distress faced by both businesses and individuals.