THE GOVERNMENT OF GHANA INDEX LINKED BONDS (GGILBs)

The Government oI Ghana Index-Linked Bonds (GGILBs) was introduced in 2001, which as
part oI the reserve requirements converted Government oI Ghana (GoG) short-term liabilities
into long-term loans. BoG required banks to hold 15 oI their total deposits in GGILBs.
The Government oI Ghana Index-Linked Bonds (GGILB) helped to a large extent in the
establishment oI a long-term debt-market in the country. This was done through the creation oI
enabling conditions Ior Iuture corporate and other government bond issues. The bonds were also
meant to help the country save about 190 billion in domestic debt interest payments by the end
oI the year 2002.
According to the Centre Ior Policy Analysis (CEPA), 2003, savings on the account oI GGILB
provided Iinancing equivalent to 0.04 GDP in 2002.
The bonds, which were three-year inIlation-indexed, were accompanied by real coupon rates
ranging Irom Iive to six percent. The principal and interest payments were adjusted in line with
changes in the consumer price index (CPI), which was to take account oI inIlation aIter the
GGILBs were issued. Individuals were allowed to buy shares in government companies traded
on the Stock Exchange with their acquired government bonds.
There was no trading in the GGILBs when it was listed on the stock market. This was because
the GGILBs did not succeed because it had a Iloating rate which was linked to inIlation.
The bonds, which were designed as Iloating rates, eroded the Government's guarantee on the
investment as a result oI which brokers and banks did not know how to price them in order not to
be aIIected by inIlation.
Another problem with the GGILBs was that the banks, which purchased the bonds, used them as
a requirement Ior their secondary reserve and thereIore held on to them.
The secondary reserve was abolished in 2004 and the market operators, thereIore, expected some
oI the banks to let go their investments as and when they deemed Iit in order to inIluence trading
in a new 2nd and 3rd year Iixed or Iloating bonds.

References
1.Sector proIile oI ghana`s Financial services industry (2009)
2.The Statesman, 2006, Govt Bonds listed on Stock Exchange,
http://www.thestatesmanonline.com/pages/newsdetail.php?section2&newsid1033
3.CEPA, 2003, Ghana Economic Review