The government has issued a GH¢ 440 million five-year domestic bond in a fresh bid to use longer term maturities to restructure its rising debt and FINANCE some infrastructural projects.
The coupon rate for the bond, which is open to foreign and domestic INVESTORS, is expected to reflect the highest competitive bid accepted at the auction for the security.
It is, thus, feared that the risks posed to the economy could push INVESTORS to demand a higher interest rate on the bond and make government’s debt bigger.
But the government has already expressed fears that Dr Mahamadu Bawumia’s lecture at the Central University College may scare INVESTORS from patronising the bond issue.
According to a Deputy Finance Minister, Mr Cassiel Ato Forson, INVESTORS might not patronise the bond due to the recent analysis of the economy by a former Deputy Governor of the Bank of Ghana, Dr Bawumia, in his lecture on the International Monetary Fund (IMF) deal.
‘You know what this has done to Ghana? We are going to the bond market; We have a five-year bond which we are auctioning today and we were hoping it will be successful. But he has ended up evoking fear and panic among INVESTORS and this is not good,’ he told Accra-based Citi FM.
‘I think he must apologise because he has sent the wrong signals to INVESTORS and this could affect the success of this bond,’ he said.
But a source at the Bank of Ghana was upbeat that the bond would be oversubscribed, despite Dr Bawumia’s claim on the economy.
“The market or investors will not be sensitive to these kinds of claims and so we expect a successful bond issuance,” the source told the Daily Graphic.
“The issuance of the bond has become necessary because of the need to “roll over maturities, restructure government debts and also for liquidity management”, it added.
The country plans to raise a total of GH¢25.4 billion ($7.88 billion) in domestic securities before July, as stated in the Bank of Ghana’s issuance calendar for the year.
This is twice the GH¢12.72 billion it borrowed through the issuance of government securities in the same period last year.
Ghana expects a $940 million bailout from the IMF to contain its grappling fiscal problems including a debt-to-gross domestic product ratio, which has risen above 60 per cent.
Besides paying its maturing debts, the funds raised from the bond issuance next month will also be used to finance government’s liquidity challenges.
According to the Bank of Ghana’s debt issuance plan for the first half of this year, the government, in February alone, raised about GH¢4.15 billion through various securities including treasury bills, one-year and two-year fixed notes.
This year, government has budgeted GH¢8 billion as interest payment for domestic debts — out of the total GH¢ 9.5 billion — raising concerns that debt overhang may cause government to be 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.
Already, the country is saddled with a debt stock which stood at GH¢65.7 billion at the end of August and increased to GH¢69,705.90 million (US$21,733.51 million) at the end of September 2014.
This year, the amount government has set aside to FINANCE interest payments on debt is more than the GH¢8.3 billion it could possibly raise from external loans and grants.
Anxiety over the country’s debt levels has heightened as economic growth has slowed and is expected to expand by 4.5 per cent — below the targeted 7.1 per cent in 2014.