Ghana Restricts Pension Fund Offshore Investments Amid Currency Concerns

Ghana has imposed restrictions on private pension fund managers seeking to invest in offshore assets, citing concerns about potential pressure on the country’s cedi currency. The move, confirmed by three industry sources, highlights the government’s cautious approach to balancing domestic economic stability with investment diversification.

Growing Pension Fund Assets

Since the introduction of pension reforms in 2010, Ghana’s retirement savings have grown significantly, thanks to a tiered scheme allowing private firms to manage portions of workers’ contributions. By June 2024, the pension fund industry had accumulated assets totaling 78.2 billion Ghanaian cedis ($4.93 billion), with over 73% managed by 39 private fund management firms.

The system is structured into three tiers:

• Tier one: Mandatory contributions managed by the state-run pension fund for monthly retirement benefits.
• Tier two and three: Managed by private firms, covering mandatory and voluntary contributions, disbursed as lump-sum payments at or before retirement.

While the majority of pension funds are invested domestically, including in Ghana government Eurobonds, private fund managers have increasingly sought offshore opportunities, particularly following the restructuring of 31 billion cedis under a local debt rework.

Offshore Investment Standoff

Ghanaian law permits up to 5% of pension fund assets to be invested abroad—approximately 2.8 billion cedis based on current totals. However, a discrepancy between fund managers and regulators over the need for prior approval has created tensions.

According to sources from private pension firms and the finance ministry, some fund managers initiated offshore investments earlier in 2024 but faced pushback from the National Pensions Regulatory Authority (NPRA).

“They [NPRA] threatened to sanction us, but we found no legal basis for it,” one fund management source stated anonymously. Another revealed their firm had $5 million in offshore assets but had been effectively barred from expanding those investments.

Regulatory Clarifications Underway

John Kwaning Mbroh, head of the NPRA, emphasized that there is no outright resistance to offshore investments. However, regulatory approval requires government consent, which has delayed decision-making.

“We’re working to streamline the rules and clarify valuation processes for offshore investments, but there’s no fixed timeline,” Mbroh said.

Protecting Economic Liquidity

Ghana’s economy is recovering from a $30 billion international debt default in 2022 and is concluding a debt restructuring under the G20’s Common Framework initiative. Despite these efforts, the cedi has depreciated by 25% year-to-date, compounding inflationary pressures.

A finance ministry source noted that while offshore investments could enhance value for pension funds, they must be weighed against their impact on domestic liquidity. “It’s not a matter of saying ‘no,’ but ensuring the economy and liquidity are protected,” the source explained.

Private Sector Pushback

Private pension fund managers argue that the restrictions hinder value creation and are inconsistent with global practices. They point out that foreign pension funds are allowed to invest in Ghana’s market, while domestic funds face restrictions on diversifying abroad.

“Globally, pension funds pursue value, but we’re being forced to chase inflation,” lamented an executive from one of Ghana’s top five fund management firms. They argued that allowing the 5% offshore cap would have a negligible impact on the local market but could significantly boost returns.