World Bank Passes Vote of Confidence In Ghana Cedi

Dr Kweku Osafo

The World Bank is to raise funds from the international market to finance development and capital projects in Ghana, following marked economic improvement and the strength of the Ghanaian cedi.

By a letter from the Treasury Department of the World Bank dated July 31, 2007, the World Bank sought the consent of the Ghana Government “to allow the International Bank for Reconstruction and Development (the World Bank) to issue Ghanaian cedi denominated or linked bonds in international markets”.

“Pursuant to Section 1 (b) of Article IV of the World Bank's Articles of Agreement, the Bank would need the consent of the Ghana government to issue bonds denominated in its currency and market,” the letter said.

Subsequently, in a reply dated August 30, 2007, the Ghana Government gave its approval to that effect.

In the said letter, the Finance Minister said “on behalf of the government of Ghana, I hereby give my approval, in accordance with Article IV, Section 1(b) of Articles of Agreement of the International Bank for Construction and Development (the World Bank), to borrowings by the World Bank denominated in, or linked to GH¢, in international markets outside of Ghana”.

The proposal is said to be the first by the Bretton Woods institution to mobilise funds for Ghana's development outside the normal credit lines of the bank and without the usual tight conditionalities.

Documents sighted by the Daily Graphic and confirmed by top officials of the Ministry of Finance and Economic Planning in Accra indicated that the proposal by the bank to the government had been precipitated by the stability of the Ghanaian economy, particularly the cedi, rate of inflation, exchange rate, interest rate, reserves, debt sustainability and growth rate.

Sources at the ministry explained that a bond is simply an “I Owe You” (I.O.U) issued by institutions or governments to individuals, groups and organisations to buy. By purchasing a bond one lends money to the institution or the government issuing it.

In return for the loan, the issuer promises to pay the investor or person a specified rate of interest during the life of the bond and to repay the face value of the bond (the principal) when it “matures” or comes due.

The World Bank is a premier issuer in the international debt capital markets. With more than 60 years presence in international capital markets, the bank has built a strong franchise in its issuance activities in the major and emerging currencies such as the US dollar, the Euro and the Japanese Yen.

Story by Lucy Adoma Yeboah