Director of the Institute of Statistical, Social and Economic Research (ISSER) at the University of Ghana, Professor Peter Quartey, has called on government to provide support mechanisms for businesses and individuals that may be affected by the Domestic Debt Exchange Programme (DDEP).

With the debt exchange programme expected to have negative impacts on the private sector, particularly access to capital, cost of borrowing and the wider economy, Prof. Quartey highlighted the lack of support mechanisms to butress businesses. In contrast to the private sector, the Ghana Financial Stability Fund is being established to provide an additional layer of protection for the financial sector, including exclusive liquidity arrangements with the central bank to safeguard the banking sector.

“Hopefully, banks will be supported when they are in distress. But what about individuals or bondholders if the debt is stressed or the company has bought a bond and gets distressed? What is the support mechanism? I think we need to look at this,” he stated.

He spoke in Accra during an event organised by the Ghana National Chamber of Commerce and Industry (GNCCI) on the topic ‘Impact of the DDEP on the private sector’, and expressed concern that the DDEP may lead to a liquidity crisis and high interest rates – warning that without proper support mechanisms in place, the programme could have negative social consequences.

Available data suggest that a weakened banking sector could impair financial intermediation – leading to hesitance on the part of banking institutions to provide funds for individuals and businesses. This would then threaten future economic growth and development. Certainly, the present economic challenges may compromise the ability of individuals and businesses to pay their loans.

To avoid this situation, Prof. Quartey suggested that government could set up a fund to support individuals and businesses that may suffer losses or be out of business due to its debt operations. “Similarly, we can also set up a fund so any business that is stressed can get support and advice from it. We may need other forms of support that will keep businesses afloat. I think that should be done.”

Prof. Quartey also referred to the Programme of Action to Mitigate the Social Costs of Adjustment (PAMSCAD) in the past, when the World Bank and International Monetary Fund agreed to support people and businesses affected by similar programmes. He emphasised the importance of mitigating factors for the private sector to avoid adverse effects.

Introduced in 1989, the PAMSCAD provided support for people and businesses that were affected by economic adjustments.

A businessman, who pleaded anonymity, told the B&FT that the DDEP poses a major problem and could lead to negative social and economic consequences if pre-emptive measures are not taken. He said: “This is a major problem that demands attention. This initiative will have a significant impact on a large number of individuals, and without adequate support systems in place there may be negative social and economic repercussions”.

Another businessman, who also requested anonymity, shared the same concern and agreed with Prof. Quartey’s suggestion to consider how to assist businesses and individuals affected by the DDEP.

“Without assistance, a lot of companies and people will fail – which would be disastrous for the economy. I really believe Professor Quartey is correct. We need to consider how we might assist businesses and individuals who could be impacted by this initiative,” he said.