Picketing at the Jubilee House, Finance Ministry, and Pension House by Pensioners of all ages over Ken Ofori-Atta’s crude Haircuts would not be a bad idea
Mr. Ken Ofori-Atta, after denying the true state of the Ghanaian economy and rather dancing around the issue for a long time, rushed to the International Monetary Fund (IMF) almost ‘naked’ for assistance in September 2022. And it is not very surprising because the economy is comatose. To qualify for assistance, IMF requested Government restructure Ghana’s unsustainable Gh460 billion debts.
This is where the economy of Ghana is after huge campaign promises by then candidate Nana Akufo-Addo to lead Ghana into prosperity within 18 months after coming to office, and Dr. Mahamudu Bawumia changing the economy from taxation to production; while Mr. Ken Ofori-Atta boasted of Ghana never going back to the International Monetary Fund (IMF) for the bailout.
In early December 2022, after six years in office, the Finance Minister launched Ghana’s Domestic Debt Exchange program. But before then, the President of the Republic, Nana Addo Dankwa Akufo-Addo had given firm assurances that there would be no HAIRCUTS for stakeholders expected to be affected by the program. According to the Finance Minister, the program is an invitation for a voluntary exchange of approximately Ghc137 billion of the domestic notes and bonds of the Republic including the Energy Sector Levy Act(E.S.L.A) and Daakye bonds for a package of New Bonds to be issued by the Republic. The Exchange excludes treasury Bills in totality, and notes and bonds held by individuals. Bondholders have been promised 0% interest in 2023; 5% in 2024; and 10% onwards. This means the bonds will be redeemed in three installments within 10 years. Existing domestic bonds as of 1st December 2022 will be exchanged for a set of four new bonds maturing in 2027, 2029, 2032, and 2037.
Obviously, there is a huge credibility gap in the governance system and information dissemination. Whom do we believe, the President or Finance Minister?
Now, the average rate of bonds in the financial market is about 22%. Reducing it to 0% in 2023, 5% in 2024 10% onwards will be very distressing and disastrous to financial institutions and also individuals on whose behalf pension fund managers bought Treasury bills and bonds. This debt exchange program was said to have been put in place without stakeholder consultations, making it illegal. The Trades Union Congress (TUC) has expressed grave concern about the failure of the Government to engage labor unions before launching the program.
Failure to engage stakeholders smells of a hidden agenda and also smacks of bad faith. These debilitating HAIRCUTS could just be the tip of the iceberg. Meanwhile, there is no information yet on any external debt exchange program and the direction it would take.
To reduce the expected hardship on stakeholders, the Government has reportedly established the Ghana Financial Stability Fund (GFSF) to cushion financial institutions like banks, SDIs, pension schemes, fund managers, broker/dealers, and insurance firms that fully participate in the Domestic Debt Exchange. The Fund has a target size of Ghc15 billion to be provided by the Government and its development partners. With the economy in a coma seeking a bailout, it is even doubtful if Government can raise its portion of the fund. The Government needs to make full disclosure of the development partners concerned. It must be noted that whatever should come from the partners will not be free money but loans with interest to add to existing unsustainable debt levels which Ghana is struggling to restructure.
How will retirees fare under the proposed haircut program?
The Finance Minister promised that the exchange excludes Treasury bills and bonds held by individuals among others. This is misleading and very deceptive. The reality is, millions of workers are contributors to pension funds, and because the funds have been invested by institutional fund managers in government securities such as Treasury bills and bonds, Pension fund contributors will suffer indirect consequences if the fund managers should take part in the program.
The Social Security and National Insurance Trust(SSNIT) and other pension fund managers hold the funds in trust for the contributors, and retirees derive their regular monthly pensions from the investment income. So in effect, the SSNIT will suffer as well as the managers of the second and third-tier funds. It will be more serious for SSNIT contributors because all the credit to be earned by the contributor is based on prevailing treasury bill rates. If SSNIT should invest in government bonds, which are a reality, the money will be lost and SSNIT will find it difficult in paying regular monthly pensions promised to retirees under the pension law, National Pensions Act 2008 (Act 766).
Retirees will have no option but endure the crude HAIRCUTS promised by Ken Ofori-Atta. Pensions paid to retirees are a reflection of the basic salary of workers. About 25% of workers on the scheme pay monthly contributions of Ghc55 or less. If such workers should retire on a basic salary of Ghc500 or less, they earn a monthly salary of Ghc300 as an initial pension to be followed by annual indexations. This is the minimum monthly pension many retirees take home today. Consider the plight of such a retiree in the face of wicked HAIRCUTS. The Cedi has lost over 60% value in recent times, while inflation in November 2022, is over 50%. So Ken Ofori-Atta is saying this Ghc300 which, through his reckless management of the economy has been reduced to nothing should again suffer an obnoxious HAIRCUT of unimaginable proportions. These kinds of HAIRCUTS have the potential to lead many unfortunate retirees bleeding to their untimely deaths.
The SSNIT reviews pensions annually based on changes in the average wage of contributing members and other economic indicators. So in January 2022, the SSNIT in consultation with the National Pensions Regulatory Authority (NPRA) and in line with Section 80 of the National Pensions Act 2008 (Act 766) indexed monthly pensions upwards by 10% for 2022. What is in store for retirees in the face of the HAIRCUTS is yet to be imagined.
In November 2022, the National Tripartite Committee (NTC) increased the National Daily Minimum Wage to Ghc14.88 for 2023 which is a 10% increment on the 2022 figure of Ghc13.53. This is in addition to a cost of Living Allowance (COLA) of 15%. The effective date for implementation is January 2023. Meanwhile, the 2023 Public Sector base pay negotiations are in progress with no hope of reaching any agreement soon. The Government side moved from 8% to 10% to 12% to 15% and to 18%. Organized labor proposed a 60% increment but later pushed it up to 65% because they believed that the 18.9% inflation projected by Government for 2023 would not be feasible in view of the severe economic crisis. Organized labor has reportedly come down to 58% at the last meeting which was adjourned to 20th December 2022 because there was no agreement.
According to the 2020 Annual Report of the SSNIT, the number of active contributors to the Social Security Fund is about 1.7 million while retirees number about 230,000. So in effect, the ratio is seven contributors to one retiree which is not good enough to sustain the scheme well into the future.
There is a higher rate of youth unemployment in the country than before. According to statistics, the 2022 First and Second Quarter unemployment rates in Ghana were 13.4% and 13.9% respectively. In comparison, the unemployment rate in the Fourth Quarter of 2016 was 5.6%. The difference is clear.
In the world of social security, the economic success story of any country is intrinsically linked with the fortunes of the social security scheme operating in the country. In a booming economy, social security schemes benefit immensely from it. But social security severely suffers when the economy is in severe crisis as it is in Ghana today.
The worsening economic situation of Ghana has taken its toll on the Social Security Fund. From the middle of 2017 to January 2020, Ken Ofori-Atta engaged in a meaningless banking sector clean-up which wasted over Ghc25 billion tocollapse11 Banks, 347 Micro Finance institutions, 15 Savings and Loans companies, 8 Finance Houses and 53 Fund Managing companies said to be in distress to the tune of Ghc9 billion. Apart from creating a massive unemployment situation and bringing hardship to families, the clean-up also resulted in the loss of thousands of active high-income contributors to the Social Security Fund, adding to the woes of SSNIT.
Over one thousand NABCO beneficiaries were registered by the SSNIT on engagement but whether their social security contributions were paid to SSNIT from their Ghc700 monthly payment is not very clear as the government is said to be in arrears over the payment of their salaries.
The future looks gloomy for the nation. Ghana’s debt to Gross Domestic Product (GDP) ratio as of December 2022 is 90.74 % according to the IMF. Ghana is indebted to the tune of Ghc460 billion; several leading banking institutions find themselves in a tight corner as a result of the Ofori-Atta debt restructuring program;8 banks, 4 local and 4 foreign are highly exposed to government bonds and securities, and may be the highest badly hit banking institutions in this HAIRCUTS program. The eight banks together control about 83.91% of the debt market share. In addition, six leading investment banks are also said to be highly exposed to government securities. They also control 89.13 of the debt instrument market. These HAIRCUTS could severely affect their liquidity position, all things being equal. International rating agencies have already downgraded some of these banks as a result of their overexposure.
Retirees in the country expect the Pension House to refuse participation in the program and should convey the same sentiments to President Akufo-Addo and Ken Ofori-Atta. The Pension House must also join other financial institutions, Trades Union Congress (TUC), and all other stakeholders to refuse the obnoxious HAIRCUTS.
To register their protest over the compulsory ‘wicked’ HAIRCUTS, picketing by workers and retirees with walking sticks and in wheelchairs at the enclaves of the Jubilee House, Ministry of Finance, and the Pension House with placards reading ‘YEMPENE WICKED OFORI-ATTA HAIRCUTS’ will not be a bad idea.
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