$2.25bn Bond Needed Parliament Stamp - John Gatsi

Economist John Gatsi has said since about 95 per cent of the $2.25 billion domestic bond issued by the Government of Ghana is indebted to a non-resident creditor, Franklin Templeton, it amounts to “external borrowing”, thus, needed parliamentary approval.

“That external borrowing per the guideline has nothing to do with the currency in which it is issued,” Dr Gatsi said in an article titled: ‘What is External Borrowing in the Context of the Issuance of the $2.5billion Euro bond and Ghana’s Public Borrowing Guidelines.’

At a press conference on Tuesday, the Minority in Parliament, led by former Deputy Finance Minister Cassiel Ato Forson, said the involvement of the US-based firm changed the dynamics of the bond from being a domestic one to an international transaction that needed parliamentary scrutiny and approval.

“We … wish to point out that this bond issue is clearly an international economic/business transaction within the meaning of article 181 (5) of the Constitution.”

“Therefore, we expected that the bond issuance would have been brought to parliament for approval. This is because although the transaction appears as to be a domestic sale of bonds, it is in truth a ‘private placement’ and an international economic transaction given the fact that Franklyn Templeton is a United States registered company and, therefore, qualifies as a foreign entity under article 181 (5) of the constitution. We, therefore, call on the Finance Minister to provide parliament with the full complement of documentation on this transaction for scrutiny and ratification.”

Addressing the concerns of the Minority, Minister of Monitoring and Evaluation, Dr Anthony Akoto Osei, told Moro Awudu on Class91.3FM’s Executive Breakfast Show on Wednesday 19 April that the bond issue did not need parliament’s approval.

“I don’t know exactly what is troubling the Minority but let me start with the issue about Article 181 (5). This was not an international transaction; this was done domestically, the participants, some of them are international but it’s a domestic bond which government does on a daily basis,” he said.

“When government goes out to raise money on the domestic market, it doesn’t come to parliament, otherwise government business will stop,” Dr Akoto Osei added, saying: “The budget is such that government tells us its financing requirements and every government is allowed on daily basis to go out and transact their transaction.”

According to him, the processes used by the Akufo-Addo government in issuing the bond are the same processes that have repetitively been used by past governments of the NDC, thus, he found the complaints of the Minority befuddling.

“The same NDC people raised a 10-year bond on the domestic market last year through the same processes, so, I don’t see how they talk about transparency. [It didn’t come to parliament]. They do it on a daily basis, it doesn’t come to parliament,” Dr Akoto Osei recalled.

“Look, what we’ve all agreed, both NDC and NPP, is that the composition of our debt is too focused towards the short term, so, it makes sense to lengthen the maturity for lower interest rates, coupon rates, so that we can save on the interest; that is what they did, that is what we are doing. They got a 10-year bond, we got a 15-year-bond with a lower coupon rate, nothing different. There is a way bonds are raised on the stock market, so it’s no big deal.”

Analysing the issue in his article, Dr Gatsi, who is a lecturer in economics at the University of Cape Coast, said Section 3.1.1 of Ghana’s Public Borrowing Guidelines explains: “External debt is defined on gross basis at any given point in time as disbursed and contractual liabilities of the central government to non-residents to repay principal, with or without interest, or to pay interest, with or without principal.

“Basically, external debt is, therefore, the amount owed to creditors/lenders which are non-residents of the country. External borrowing sources are further segmented into four categories as; Multilateral, Bilateral, Commercial and Private.”

He said: “It is clear that a greater portion of the loan comes from private external sources and, by definition, it is external borrowing, hence must comply with the approval requirements by Cabinet and Parliament.”

Below is Dr Gatsi’s full article:
WHAT IS EXTERNAL BORROWING IN THE CONTEXT OF THE ISSUANCE OF THE $2.5BILLION EURO BOND AND GHANA’S PUBLIC BORROWING GUIDELINES

By Dr John Gatsi
The minority in Parliament accused the government of three violations:

1. Conflict of interest
2. Borrowing without Cabinet Approval
3. Borrowing without Parliamentary approval
The government of Ghana released a press statement through the Ministry of Finance posted on the website of the Ministry but failed to address the issues bordering on conflict of interest which is a serious dealing that attracts severe punishment in other economies.

The Ministry of Finance is too simplistic about the explanations given especially when it was widely reported that the Attorney General of Ghana was not aware of the dealings. The Ministry of Finance should take time to deal with the matter relating to conflict of interest.

The Securities and Exchange Commission should as a matter of public interest and securing the image of the government of Ghana and the Ministry of Finance investigate the matter broadly and with dispatch.

The argument of the Ministry of Finance sought to explain to Ghanaians that the bond is actually a local bond that does not need Parliamentary approval. This explanation should be subjected to the Ghana’s Public Borrowing Guidelines which was prepared taking into consideration legal requirement using the provisions of the 1992 Constitution, The Loans Act, the Public Procurement Act, Financial Administration Act and Risk Management principles.

Section 3.1.1 of the Ghana’s Public Borrowing Guidelines explain external debt as: “External debt is defined on gross basis at any given point in time as disbursed and contractual liabilities of the central government to nonresidents to repay principal, with or without interest, or to pay interest, with or without principal.

Basically, external debt is, therefore, the amount owed to creditors/lenders which are non-resident of the country. External borrowing sources are further segmented into four categories as; Multilateral, Bilateral, Commercial and Private”.

It is clear that greater portion of the loan comes from private external source and by definition, it is external borrowing. Hence must comply with the approval requirements by Cabinet and Parliament.

Section 5.2 of Ghana’s Public Borrowing Guidelines explains the approval process within the various Departments at the Ministry of Finance. The question is have they followed the approval requirements?

The Approval Stage
“This stage begins from obtaining the Cabinet/Executive approval and ends at the Parliamentary approval through the following processes. When both Cabinet and Parliament are in session, this stage should take a period of maximum five (5) weeks to complete.

Step V: Cabinet informs both MOFEP and the Sector Ministry of its approval or decision on the request submitted through the joint cabinet memorandum. Further, in accordance with Article 181 of the 1992 Constitution of the Fourth Republic of Ghana and the Loans ACT of 1970 (ACT 335), which solely mandate the Minister of Finance and Economic Planning to borrow on behalf of the Republic of Ghana, Cabinet issues approval letter authorizing the Hon. Minister of Finance and Economic Planning to seek Parliamentary approval for the financing.

The Cabinet approval letter must indicate the project objectives, the financing terms and the decision of Cabinet on the matter”.

Another Question is whether the following have been complied with?

5.2.1 Documentations to Parliament
These are the documents to be forwarded to Parliament for consideration;

i. Cabinet or an Executive Approval
ii. Parliamentary Memorandum
iii. A letter from DMD, MOFEP, indicating that (i) to (viii) under Necessary Preparatory

Conditions have been satisfied. (At this stage, the final grant element could be determined).

iv. The Credit Agreement, as reviewed by Legal Affairs of MOFEP and/or in collaboration with

AG’s office, reflecting the financing terms as evaluated and accepted by DMD.

v. A forwarding letter from the Ministry of Finance and Economic Planning to the Clerk of Parliament.

vi. An approval from Public Procurement Board in case sole sourcing or the tender results in case of International Competitive Bidding (ICB)

vii. Copies of due diligence report (only upon request and where necessary)

viii. Prospectus for ICM and other necessary documentation.

SO WHAT IS MY UNDERSTANDING?
Since the about 95% is indebted to non-resident creditor it is external borrowing. That external borrowing per the guideline has nothing to do with the currency in which it is issued.

Conclusion
While the relevant regulatory bodies are required to do their work, the bond actually required to follow through the approval process.