GHANA has imposed restrictions on private pension fund managers looking to invest offshore, citing concerns about the impact on its weakening currency, the cedi. This clampdown has sparked debate within the financial sector, with industry leaders questioning the legality and logic of the move.
Private pension funds in Ghana have grown significantly since the 2010 pension reforms, which introduced a three-tier system allowing private firms to manage portions of workers’ retirement contributions. As of June, the sector had assets under management worth 78.2 billion Ghanaian cedis (£4.93bn), with over 73 percent managed by 39 private firms.
While the majority of these funds are invested locally, including in government bonds, fund managers have shown increasing interest in offshore investments. This interest intensified after the government restructured 31 billion cedis worth of local debt, leaving fund managers seeking better diversification and returns.
Legal tensions over offshore investments
Ghanaian regulations permit private pension funds to invest up to 5 percent of their assets abroad, equating to approximately 2.8 billion cedis of current holdings. However, the National Pensions Regulatory Authority (NPRA) recently halted some offshore investments, warning fund managers of potential sanctions.
‘They [the NPRA] threatened to sanction us, but we didn’t find any basis in law,’ an executive at a private fund management firm told Reuters. ‘We have $5 million in offshore assets but can’t invest further. It’s a strange development.’
The NPRA’s head, John Kwaning Mbroh, denied resistance to offshore investments, stating that government approval was necessary before such activities could proceed. Discussions to streamline the process and clarify valuation methods for offshore investments are ongoing, though no timeline has been given.
Balancing liquidity and economic recovery
Ghana’s restrictions come amid a broader effort to stabilise its economy following a sovereign debt default in 2022. Despite some recovery, the cedi has depreciated by 25 percent this year after a 17 percent decline in 2023.
A finance ministry official noted that the government seeks to balance the need for domestic liquidity with the potential benefits of offshore investments. ‘The ministry won’t say “no,” but it’s about protecting the economy and liquidity,’ the source told Reuters.
However, private fund managers argue the policy is overly cautious and counterproductive, particularly given Ghana’s high inflation and ongoing currency depreciation.
‘Pension funds globally seek value, but here we’re being forced to chase inflation,’ said an executive from one of Ghana’s top pension firms. ‘Allowing just 5 percent of assets to be invested abroad wouldn’t even move the needle.’
They also criticised the contradiction of permitting foreign pension funds to invest in Ghana while restricting local funds from pursuing similar opportunities abroad.
A debate on economic priorities
As discussions continue, the clash highlights the tension between protecting Ghana’s domestic economy and enabling private sector growth. Fund managers warn that limiting offshore investments could erode returns and hurt retirees in the long term.
The outcome of these talks will likely set a precedent for how Ghana balances economic stability with the demands of a globalised financial environment.
