GH¢9.7 Bn Sinking Fund Allocation: A Lifeline for Investors But at What Cost? – Expert Shares Downsides

Although the decision by the government to allocate an amount of GH¢ 9.7 billion to the sinking fund to cater for the next maturing coupon under the Domestic Debt Exchange Program (DDEP) has been lauded by investors, an analyst is revealing it is not without downsides.

While the move reassures investors, a financial analyst with Deloitte Ghana, Dennis Brown warns that it could place very significant constraints on the government’s fiscal agenda.

A statement from the presidency on Monday, February 17, 2025, announced that the Ministry of Finance has paid a coupon of GH¢ 6.081 9.7 billion to all DDEP bondholders. In addition, the government also honored the Payment-In-Kind (PIK) portion of the GH¢ 3.46 billion.

An amount of GH¢ 9.7 billion was also paid in a Sinking Fund as a debt service recovery account to serve as a buffer for the 5th DDEP coupon that will fall due in July and August 2025.

However the Associate Director at Deloitte Ghana reveals that the allocation provides certainty for investors, ensuring that maturing coupons are paid without liquidity challenges, it also tightens the government’s already limited fiscal space.

“There’s money set aside for you to recover the funds you have in there. So there’s no need to panic and it also helps in boosting confidence amongst these investors,” Dennis Brown indicated in an interview monitored by Accra Street Journal.

The analyst says Ghana is already grappling with limited domestic revenue hence dedicating a large portion of these funds to debt repayment means less flexibility in financing other critical sectors. It is also noteworthy that some taxes are already earmarked to be scrapped plugging more revenue sources.

This he says comes with consequences which include a potential squeezing of social services, infrastructure projects, and economic stimulus programs.

“We are dealing with certain finite income resources and what the government has done is to allocate a certain portion of it and dedicate it to repayments. What it then means is that there’s the remaining portion that should then be shared across the other expenditure commitments,” he stated.

He added, “What it does is introduce some sort of constraints to the other expenditure commitments we have. So we can see that there’s likely to be some type of constraints on our fiscal policies.”

The new government is still navigating the effects of high debt levels and revenue shortfalls amid an IMF program, however, the firm commitment to honoring debt obligations with the sinking fund allocation put other expenditure items in jeopardy.

Investors, economists, and financial analysts will monitor keenly to see whether the government can maintain this strategy without derailing its broader fiscal agenda.

Last Updated on February 19, 2025 by samboad