The Domestic Debt Exchange programme and related challenges …time for Ghana to adopt Islamic finance?

The Ghanaian econo­my the last five years has been plagued with various economic woes, the COVID-19, Russian- Ukraine War and a plethora of other internal factors. The latent effect of these challenges is that the economy has taken a nose dive and all macroeco­nomic indicators are unfavourable.

The inflation rate for the month of December,2022 was 54.1% (Ghana statistical Service), the GDP to debt ratio is 78.4% according to the Minis­try of Finance, exchange rate, interest payments have risen to almost of 70 % of government revenue (Alja­zeera).

To remedy the situation the Gov­ernment approached the IMF for budgetary support and significant progress has been made by obtaining a staff level agreement in December last year.

A major prerequisite for an IMF programme is for the Government to carry out a debt exchange programme to ensure debt sustainability of the Country’s Debt Stock Portfolio. The IMF has said its board will approve the deal only if Ghana undergoes comprehensive debt restructuring (Reuters).

Most these debts have no direct relationship to any of the asset as they are used for repayment of existing loans or financing the deficit gap in the Budget. This feature of the conventional finance makes man­agement of the debt of the Country unsustainable especially at high debt levels as in the case of Ghana.

This article explores how Islamic Finance can be used as a supplemen­tary source of funding for mainly the infrastructure projects and not create an increase the Country’s debt stock.

The Domestic Debt Exchange Program of Ghana

The Ministry of Finance on its website on the December 2, 2022 described the Ghana Domestic Debt Exchange programme as an arrangement through which holders of Eligible Bonds will submit their holdings of Eligible Bonds governed by Ghanaian law and denominated in Ghanaian Cedis (GH¢) for new benchmark Government of Ghana bonds with the same aggregate prin­cipal amount.

The program has not received the expected response from Bond Hold­ers in Ghana and there has been calls for total withdrawal or restructuring of the program. Reuters reported on the 16th of January 2023 that Government last week offered to pay holders of its 2023 bond a two % cash fee in exchange for registering for the exchange, but opposition to the program has remained pervasive.

The resistance to the Domes­tic Debt Exchange Programme, the lack of access to the Euro Bonds Market as well as access to concessionary loans should make Government consider Islamic Finance as a supplementary source of funding, especially for infra­structure projects.

According to the Natural Resource Governance Institute, Ghana’s infrastructure financing totalled USD 23 billion between 2007 and 2020, and annual infra­structure investment will need to reach $9.3 billion by 2030 (13.9 percent of 2019 GDP).

Islamic Finance has proved to be a reliable source of financing for countries within the West Af­rican sub-region like Nigeria, Côte d’Ivoire, Gabon and or Europe such Germany and the United Kingdom.



According to the World Bank Group, the term Islamic finance is used to refer to financial activities conforming to Islamic Law (Sha­ria). One of the main principles of the Islamic finance system is the prohibition of the payment and the receipt of riba (interest) in a financial transaction.

Islamic Finance significant­ly leverage equity-based, as­set-backed, ethical, sustainable, environmentally, and socially responsible finance. It promotes risk sharing, connects the financial sector with the real economy, and emphasizes financial inclusion and social welfare.

The term riba covers all forms of interest and is not limited to usury or excessive interest only. The most critical and significant implication of banning interest is the indirect prohibition of a “pure” debt security.

Islamic Finance does not rec­ognise the transactions which in­volves purely selling money at the price of interest. This prohibition is a result of there being no direct relationship between money and the real sector. Therefore, Islamic Finance views money as a medium of exchange and not a commodity that can be traded without any underlying Asset.

Islamic Finance requires that return must be tied to an asset, or participation and risk-taking in a joint enterprise (such as part­nerships). A pure debt security is replaced with an “asset-linked” security, direct financing of a real asset, and different forms of part­nerships of which equity financing is the most desirable.

In addition to prohibition of interest, there are several other important provisions which may affect financial transactions. These include the prohibition of ‘gharar’ (uncertainty or asymmetrical information), ‘maysir’ (gambling, speculation), hoarding, as well as trading in prohibited commodities (for example, pork and alcohol).

Islamic Finance has various instruments used in financing. The financial expenditure determines the appropriate financial instru­ment to be used. Basic instru­ments include cost-plus financing (murabaha), profit-sharing (muda­raba), leasing (ijara), partnership (Musharaka) and forward sale (bay’salam)

The Islamic finance Develop­ment report 2022 published by Refinitiv, of the London Stock Ex­change Group which was launched at the AAOFI conference held in Bahrain in November last year. The global Islamic finance industry is projected to grow to US$5.9 trillion by 2026 from US$4 trillion in 2021, mainly driven by its biggest segments, Islamic banks and sukuk


The fundamental principles of Islamic Finance such as as­set-backed and risk sharing make it a natural fit to attract infrastruc­ture investments. Infrastructure are either tangible or intangible assets, making them perfect candi­dates for being financed by Islamic finance methods.

In a report, titled Reference guide: Islamic finance for infra­structure PPP Projects published by the World Bank in partnership with the Islamic Development Bank in 2019. It is mentioned that Governments have two main ways to finance public infrastruc­ture: pay-as-you-go (pay-go) and pay-as-you- use (pay-use). Pay-go financing refers to using budget allocations or other current assets rather than debt issuance to fund infrastructure projects.

Sukuk also called Islamic Bonds allows Governments to finance infrastructure projects without issuance of debts and subsequent­ly not increasing the debts stock portfolio. Ghana can use Sukuk to construct the much-needed railway infrastructure from Accra to Paga without increasing the debt stock. The Vanguard in Nigeria reported in a website publication on June 5th, 2022, that the Nigerian Government raised N100 billion to finance the rehabilitation and construction of 25 road projects across the six geopolitical zones.

Malaysia issued $800 million of 10-year Sukuk, as well as $500 million for30-year Sukuk. The initial target size was $1 billion, but the offering was oversub­scribed by 6.4 times due to heavy demand (VOA News)

The government of Singapore was one of the earliest non-Mus­lim entrants into the space, fol­lowed by the United Kingdom, Luxembourg, and Hong Kong, which issued their first sukuk in 2014.

Ghana can follow the steps of the United Kingdom, Singapore, and Nigeria to issue Sukuk to finance infrastructure projects. The main requirement is to review the financial laws to create a framework to attract Islamic Finance Investment. There is the need to make changes to the legal and tax regimes. The funds raised using Islamic Finance Instruments will provide the needed essential Funding for critical areas of the economy but importantly will not create debt to increase the nation’s Debt Stock Portfolio.


From the information pre­sented above it is noteworthy to conclude that Islamic Finance has been used by many Countries as other source of financing. The asset backed and risk-shar­ing feature of Islamic Finance ensures no debt is created and no payment of interest is required. Debt servicing has become a huge burden for the Ghanaian economy and adopting Islamic Finance is one of the strategies the country can use to minimise the pressure on the public purse.

[The writer is a Chartered Accountant, Certified Islamic Finance Executive Research Fellow of Islamic Research Instit ute, Ghana (IFRIG)]


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