The Bank of Ghana has served notice of government’s intention to borrow GHȻ25.42 billion from the domestic market within the first six months of the year.
The amount is twice the GHȻ12.72 billion the government borrowed through the issuance of government’s securities in the same period last year.
The Bank of Ghana stated in the issuance calendar of government of Ghana for January to June that in January alone government intends to borrow GHȻ3.5 billion, which is the least amount to be borrowed from the domestic securities market – with the highest being GHȻ4.84 billion in March and June.
“Issuance decisions support government liquidity requirements, which will include the redemption/rollover of maturing securities for the week,” it said.
This year, government has budgeted GHȻ8 billion as interest payment for domestic debts out of the total GHȻ9.5 billion – raising concerns that debt overhang might make government unwilling to implement adjustment programmes that will promote economic growth because a greater proportion of the benefits will end up as debt-service payments to creditors.
Development experts have thus urged government to use the borrowed funds judiciously; in particular for productive purposes so that sufficient growth can be generated to reduce the debt service burden and foster sustainability.
Government’s borrowing plans for the first half of this year also indicate that only GHȻ2.54 billion of the amount will be raised from 3-year, 5-year and 7-year bonds, which suggests that investor appetite for long-term debt remains weak because of lingering doubts about long-term macroeconomic stability and public financial sustainability.
It also affirms fears that Ghana is facing a debt problem with debt-to-GDP ratio reaching 60.2%, which has been described as unsustainable or hitting levels that might make it difficult for government to settle those debts on time.
Anxiety about the country’s debt levels has heightened as economic growth has slowed, and is expected to expand by 6.9% – below the targeted 7.1% – in 2014.
Additionally, on the fiscal side revenue shortfalls, overruns in the wage bill, and rising interest costs threaten to push government’s fiscal deficit target of 6.5% in 2015 out of control – a critical factor for long-term debt sustainability Currently, crude oil revenue – which has become a key component in government’s revenue – is expected to fall, following the recent slump in crude oil price on the market to a five and half year low of US$50 a barrel, and throw the government’s fiscal consolidation efforts out of gear.
Historically, however, government’s borrowing patterns have tended to be on the high side because of the seasonality in revenue flows; such that usually in the first and second quarters government receipts fall short of expenditures, as happened in the first quarter of last year.
Among many analysts who spoke to the B&FT, the cause of worry with government’s exponential borrowing from the domestic market is the threat of crowding out it poses to SME businesses – which are already facing a credit squeeze and will have to compete with government for investors money.