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Debt Exchange Programme will result in economic contraction – Alex Mould warns

Alexander Mould, former NPA boss
A former Executive Director and Co-Head Wholesale Bank, Standard Chartered Bank, Alexander Mould, has warned that the government’s debt exchange programme in its current form would result in economic contraction.
He has since suggested to the government to re-visit the programme, and create policies that will bring back confidence in the economy, and attract investments.
The former Chief Executive Officer of the National Petroleum Authority (NPA), Mr Mould, said this in a post he made on his Facebook page hours ago.
According to him, banks risk losing about “60% of their revenue,” as they will not get any income from the government treasury bonds they hold for almost one and half years.
Below is the full post
Gov’t seems not to have thought through this debt exchange programme thoroughly; the economic contraction implications are dire!
There will be a general slow down of the economy and we will either not grow as anticipated, and, perhaps, even not exceed 2% GDP growth this year.
This will be due to less demand, which means that there will be less production, fewer imports, and fewer services being given to the populace.
Now, what does this mean for government revenue?!?
Since the demand of goods and services will go down, it means people will be paying less taxes. Additionally, due to reduced demand – a result of less discretionary expenses – there be fewer imports and as such there will be less duty and other excise taxes collected at the ports.
So, government revenue will plummet and they may fall short of making the projected revenue in the approved budget.
The Debt Exchange, if carried out in its current form, will result in many banks not getting any income from Government Treasury Bonds they hold for almost 1.5 years! In some cases, this forms up to 60% of their revenue and is a huge contributor to their profits! To be blunt most banks will be making losses when you combine this loss of income to the high default rate on loans to SMEs and corporates.
With lower than expected revenue, Government will have no other option than to cut down its expenditure.
The first to go will be discretionary expenditure and other non productive policy programmes.
We also expect a reduction in the construction of new roads as well as a slow down in road maintenance, and a lot of non-essential govt workers’ salaries being delayed or not paid at all etc ie more expenditure accruals.
Furthermore, with the statutory payments, like pension contributions, the situation will be worse than it currently is i.e. gov’t backlog of unpaid pension contributions of gov’t workers.
Gov’t needs to re-visit this debt exchange program, and create policies that will bring back confidence in the economy, as well as attract investment to spur on the economy; resulting in more spending and increased savings

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