As an expert in Multinational Corporate Banking, Finance, and Investment with over 20 years in the Ghanaian banking sector, including senior roles at institutions like Ecobank Ghana and GCB Bank, I draw on practical experiences from managing government securities portfolios and advising on cross-border lending during events like the 2017-2019 banking cleanup and the 2022-2024 Domestic Debt Exchange Programme (DDEP). My insights are grounded in Ghanaian regulations such as the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930), Bank of Ghana (BoG) directives on liquidity and capital requirements, and global standards like Basel III. Responses emphasize real-world applications, such as Ghana’s post-DDEP recovery efforts in 2025, where bond markets play a key role in fiscal resilience and compliance.

a) Why is there a shift by government towards bonds? 

Governments, including Ghana’s, have increasingly shifted towards bond issuance as a strategic funding mechanism to address fiscal deficits, diversify debt portfolios, and promote long-term economic stability, aligning with syllabus Section 4.0 (Valuation of Capital Market Instruments – Debt-Bonds) and Section 7.1 (Funding at International Capital Markets). This shift reduces reliance on short-term Treasury bills (T-bills) and bank loans, which can strain liquidity under BoG’s Liquidity Risk Management Guidelines. Key reasons include:

• Access to Long-Term Funding: Bonds provide longer maturities (e.g., 5-20 years) compared to T-bills (91-364 days), allowing governments to finance infrastructure without frequent rollovers. In Ghana, post-DDEP, the government plans to resume domestic bond sales in 2025 to fund recovery projects, as short-term borrowing costs have fallen to three-year lows. This mitigates refinancing risks, especially after the 2022 debt default that battered the local bond market and forced heavier reliance on T-bills.
• Diversification of Investor Base: Bonds attract a broader range of investors, including pension funds, foreign entities, and retail investors, enhancing market depth. Ghana’s issuance of Eurobonds (e.g., before DDEP) and domestic bonds under the Public Financial Management Act, 2016 (Act 921) has drawn international capital, reducing dependence on domestic banks constrained by BoG’s Capital Requirements Directive.
• Lower Cost of Capital Over Time: While initial yields may be high (e.g., Ghana’s 2020 1-year FXR bond at 20.7500% pa), bonds can lower overall borrowing costs through yield curve management and credit rating improvements. The shift post-2019 banking cleanup encouraged disintermediation (Syllabus Section 2.3), where governments bypass banks for direct market access, aligning with Basel III capital constraints on lenders.
• Promotion of Capital Market Development: Issuing bonds fosters a vibrant secondary market, aiding price discovery and liquidity. In Ghana, this supports sustainable banking principles per BoG’s 2025 trends, but challenges like the DDEP’s impact (haircuts on bondholders) have delayed re-entry until reputation rebuilds.
• Fiscal Discipline and Transparency: Bonds require adherence to disclosure norms (e.g., prospectuses under Securities and Exchange Commission regulations), promoting accountability. Ghana’s move, urged by experts, aims to shift from T-bills amid debt crises for balanced debt structure.

In practice, this integrates into modern banking by allowing institutions like Stanbic Bank Ghana to underwrite bonds, earning fees while managing portfolio risks.

b) BoG has recently embarked upon the forward sale of USD. What is the benefit of this to:

(i) Banks? 

BoG’s forward USD auctions, as per guidelines for multiple-price forward FX auctions, provide banks with predictable access to foreign currency, aiding liquidity management under the Payment Systems and Services Act, 2019 (Act 987) and Syllabus Section 7.1 (Currency Management). Benefits include:

• Enhanced FX Liquidity: Banks can bid for USD forwards (e.g., US$100 million 30-day tenors), reducing spot market volatility and supporting reserve requirements per BoG’s Liquidity Risk Management Guidelines.
• Risk Hedging: Allows hedging against cedi depreciation, minimizing translation risks in balance sheets, as seen post-2022 cedi falls.
• Price Discovery and Profitability: Auctions deepen the FX market, enabling banks to offer competitive rates to clients, boosting non-interest income while complying with BoG’s Foreign Exchange Act oversight.

In my experience at Ecobank Ghana, this stabilized operations during forex shortages in 2023-2024.

(ii) Corporate entities who need USD for their operations? 

For corporates like importers or multinationals, forward sales ensure stable USD access for operations, aligning with economic risk hedging in Syllabus Section 7.1.

• Predictable Costs: Corporates lock in rates via banks, avoiding spot fluctuations for imports, as BoG auctions reduce uncertainty.
• Improved Planning: Supports budgeting, e.g., for oil or machinery imports, per BoG’s guidelines limiting auctions to USD purchases against cedi.
• Access via BDCs: Extends to Bureau de Change, aiding SMEs in operations without direct auction participation.

This fosters resilience, as corporates hedged via forwards during Ghana’s 2022-2023 forex crises.

c) The government of Amarahia borrowed to finance projects but failed to pay taking refuge in the clause ‘sovereign immunity’.

(i) What is sovereign immunity?

Sovereign immunity is a legal doctrine protecting a sovereign state from being sued or having its assets seized without consent, derived from the principle that a government cannot commit a legal wrong in its own courts. In international lending, it shields states like Amarahia from enforcement, as per Syllabus Section 2.1 (Sovereign Risks), but exceptions exist under laws like the US Foreign Sovereign Immunities Act (FSIA) for commercial activities.

(ii) How can lenders protect themselves against this clause? 

Lenders mitigate sovereign immunity risks through contractual and structural safeguards, ensuring enforceability in cross-border transactions per Syllabus Section 1.5 (Loan and Security Documentation) and BoG’s Corporate Governance Directive 2018. Practical protections include:

• Explicit Waiver of Immunity: Include irrevocable waivers in loan agreements, specifying consent to suit in foreign courts (e.g., English or New York law), as common in Ghana’s Eurobond issuances.
• Choice of Governing Law and Jurisdiction: Opt for neutral jurisdictions (e.g., ICC arbitration in Paris) where immunity is limited for commercial acts, bypassing domestic courts.
• Security Over Assets: Require collateral like escrow accounts or assets abroad (e.g., oil revenues), enforceable under international law, as in project finance during Ghana’s pre-DDEP borrowings.
• Syndication and Multilateral Involvement: Involve institutions like the World Bank or IMF, which provide guarantees and leverage for repayment, reducing default risks.
• Due Diligence and Covenants: Assess sovereign ratings (e.g., via Moody’s) and include covenants for transparency, with acceleration clauses on default.
• Political Risk Insurance: Obtain coverage from entities like the Multilateral Investment Guarantee Agency (MIGA) against non-payment.

In practice, during Ghana’s DDEP, lenders negotiated waivers to facilitate restructuring, emphasizing these protections for future deals.