Ghana Beyond Aid And Infrastructural Financing  

We live in a culture in which those who are better off subscribe both mentally and financially to the notion that giving alms to the poor is the right thing to do. So the choice of foreign aid had been the optimum solution to the problems of Ghana’s poverty. The “Ghana beyond aid” agenda has a different voice. The agenda is calling for a Ghana that will free itself from a mindset of dependence and charity. The Ghana that is going to mobilize its own resources to develop and confront its own economic challenges.

Aside the president’s vision, the middle income status of the country makes it difficult to access the expected foreign aid. Ghana cannot continue to tell poverty stories to attract foreign aid but must identify innovative strategies to raise funds internally and externally to embark on infrastructural and industrial development.

With Ghana exiting the IMF programme by the end of this year, the government has stressed that the country is determined never to return to the IMF arrangement. In order to do so, we have to look seriously at how we can secure sources of long-term finance that will allow us to deal with our infrastructural deficits, and also realize the vision of a Ghana beyond Aid.

The president announced at a ceremony in Beijing to sign eight Ghana-China co-operation agreements that “the Ministry of Finance and the economists in Ghana are looking at floating a $50 billion Century (100-year) Bond”. This will provide us with the resources to finance our infrastructural and industrial development. According to the Finance Minister, the budget statement which is expected in parliament on November 15 will give clear information and strategies on how the government intends to raise the fund.

Countries issue bond for different reasons. Some of these reasons are to increase liquidity, to reduce reliance on foreign aid, to fund expensive short-term domestic debts and payments on yields of maturing bonds, to protect the market from unpredictable fluctuations, to support economic growth and to attract more investments. Ghana’s case is not different, the reasons for issuing the Eurobonds in 2007, 2012, 2014, 2015, 2016 and 2017 with different maturity periods ranging from 5 to 30 years have been to refinance short-term expensive debt and budgetary support.

Countries like Austria, Mexico, and Argentina floated century bonds to fill infrastructural gaps. The African Development Bank estimates Africa’s infrastructure deficit between US$130-US$170 billion a year with a financing gap ranging between US$68-US$108 billion. At present, Ghana’s annual infrastructure deficit stands at about US$2.5 billion and there is no doubt that there is a need for additional financing.

There are a number of projects in Ghana that are started but are uncompleted or abandoned for lack of funds. These have led to price variations and cost escalations. The cost escalations are estimated at about five times the original cost. Having a long term financing plan to implement projects at the estimated contract cost without cost fluctuations is commendable

However, the disbursement profile of the funding must be carefully managed, so as not to destabilize the existing macroeconomic fundamentals. Ghana’s GDP is estimated at $48 billion and we are attracting $50 billion. The funds must be disbursed in phases and used judiciously on growth-enhancing sectors.

Issuance of a century bond may increase the cost of servicing debt at the expense of capital expenditure. Three expenditure items including interest payment, statutory payment and compensation to public sector employees consumed a large portion of government revenue. Ghana’s public debt as percentage of GDP stood at 69.8% in 2017 and interest payment as percentage of tax revenue stood at 41.8% in the same year, according to the Ministry of Finance.

We have to ensure that non-concessional borrowing is used to finance high priority infrastructure projects with growth potential in order not to leave debts for posterity. Growth in the debt stock for unproductive expenditures could be a threat to the Ghana beyond aid agenda.

The government must explore other ways of addressing the infrastructural gaps. The bottlenecks to infrastructure development in Ghana include a weak legal and institutional framework, poor project planning and preparation and corruption. A study by Global Financial Integrity (GFI) estimated that between 1960 and 2012, Ghana lost about US$40 billion through trade mis-invoicing. The Auditor General’s Report has indicated that between 2012 and 2014, GH¢5.9 billion of government funds cannot be accounted for. Corruption especially in procurement of goods and services is estimated at some 1.5% of GDP annually. The government must be committed to preventing procurement fraud and illicit financial flow to boost infrastructure development.

The issuance of a bond must not be a substitute for improving local revenue mobilization and ensuring prudent fiscal management.