Rethink On How You Borrow --Gov’t Told

Financial analysts have warn government over its reliance on the issuance of bond and other debt instruments to run the economy.

“Until government moves away from its current strategy of raising money through bond issues, the current economic challenges may spiral,” they cautioned.

“There seems to be an escalating debt build up and we are unable to sustain the payments as we go forward,” said Casley-Hayford, noting that managers of the economy seem to be borrowing rather aimlessly from the domestic market especially.

“Government has to rationalise its expenditures drastically,” Casley-Hayford suggested.

Additionally, Kenneth Thompson, Chief Executive of Dalex Finance admonished that “You can’t continue to borrow to consume. You have to cut cost or increase revenue or do both, there is no other way out”.

He said if the borrowing spree persists, Ghana’s high debts could cause both local and foreign investors to be concerned about doing business with the country “because they won’t feel secure.”

Although, last week, the Ministry of Finance announced that, Ghana’s fourth Eurobond has been over-subscribed with orders exceeding US$2 billion, compared to a target of US$1 billion at a coupon rate of 10.75 per cent.

“This represents an over-subscription of more than 100 per cent, indicating the high appetite for Ghana’s credit,” a statement issued by the Ministry of Finance said.

The over-subscription occurs within a period of high turbulence in emerging and peripheral markets.

However, Mr Thompson has argued that, oversubscription of the latest bonds issue does not mean confidence in the country’s ability to pay back interests on the loan.

“Over subscription is merely a play of words. It does not really mean you got what you wanted in terms of a good deal,” he said.

He said the fact that government intended to raise $1.5 billion on the international market but was able to raise only $1 billion is a sign that confidence in the economy is waning.

The International Monetary Fund (IMF) has also been making similar suggestions to government as it forecasts a debt-to-GDP ratio of more than 72% for the Ghana economy by end of the year.

Eurobond The bond is a soft one with a tenure of 15 years amortising in years 2028, 2029 and 2030. The principal will be repaid in three instalments of US$333 million in 2028 and 2029 and US$334 million in 2030.

The 15-year tenure means that Ghana has become the first sub-Saharan African country to successfully issue a 15-year bond.

The statement explained that just as with the three previous issues, this year’s bond attracted investors from the United Kingdom, Europe, the United States, the Middle East and Asia.

It said the notes would be listed on the Irish and the Ghana Stock exchanges.

According to the Ministry, the bond was issued after an eight-day roadshow that took the Ghana team, led by Mr Seth Terkper, the Minister for Finance, and Dr Henry Kofi Wampah, the Governor of the Bank of Ghana, to London, Los Angeles, San Francisco, Boston and New York.

Mr Terkper on a phone conversation, expressed satisfaction at the development, especially when some analysts had earlier expressed doubt over Ghana’s ability to raise the Eurobond.

He called on Ghanaians to view the opportunity within the context of the difficult environment within which it happened.

According to Mr Terkper, the initiative, which was backed by the World Bank partial guarantee of US$400 million, had enabled Ghana to borrow on reasonable terms in a rather difficult market, saying that it had been acknowledged as the first time in sub-Saharan Africa, but following South Africa in Africa, that a country had been able to do a 15-year tenure on the capital market.

He explained that there was confusion surrounding the latest initiative because in the earlier three bonds, the pricing came immediately after the roadshow.

However, he said, the most common practice was to wait for an opportunity to price when market conditions were conducive.

“Therefore, given recent volatilities in the market, including the US Federal rate decisions, the slowdown in the Chinese economy, the fall in commodity prices, as well as outflows of funds from emerging markets and peripheral markets, it makes sense for Ghana to wait for a good opportunity to price the bond,” Mr Terkper said.

He said the Eurobond would be used to refinance maturing domestic debts.

He noted that Ghana had once again issued a landmark bond, as many new investors had participated in the transaction, enabling Ghana to expand its investor base.

He reiterated that the bond issuance was in line with Ghana’s new debt management strategy, guided by the principle of smoothening the maturity profile and minimising interest burden on the budget.

But, in totality critical analysis of the country’s debt portfolio is not encouraging.

Even at the current debt-to-GDP ratio of 62%, the IMF has classified Ghana as a ‘High Debt Distress’ country

When a country is classified as High Debt Distress country, the IMF usually prescribes a freeze on borrowing by that country until it makes some progress in reducing its debts.

Apparently, Casley-Hayford believes he has a solution to the country’s debt quagmire.

He said although government’s continuous borrowing on the international market is a problem, a bigger problem is the volume of domestic borrowing that government has done over the years.

“Government’s main concern should be how it to cut its appetite for domestic borrowing”, he said

He said to do that government must shift the mix from borrowing too much on the domestic market and let the private sector do the borrowing.

“In essence government must come out of the domestic borrowing vicious cycle that it finds itself,” he said,

He said government must take a look at its revenue lines and find ways of increasing it.

“In this country, a few culprits are taxed and really taxed heavily in order to bring in corporate revenue. The bulk of our taxes are coming from indirect taxes which is from VAT. The rest of it is neither here nor there,” he observed.

He said government must think of smart ways of increasing revenue, but this must not necessarily be through tax hikes.