THE VIEW: Dr. Kofi Lindsay on Eurobond

Ghana Talks Business’ Paa Swanzy-Essuman sat down with economist and legal practitioner, Dr. Kofi Lindsay to get his take on the Ghana’s Eurobond road show and matters arising from the issue. 

Paa Swanzy-Essuman is noted here in the interview as GTB and Dr. Kofi Lindsay as DL

GTB: Eurobond! the way to go? looking at the stock of debt bedeviling us.

DL: Well, actually, if one is borrowing, one needs to borrow if the returns from what you borrow from is going to be greater than the cost of borrowing. When you do that then irrespective of the size of the debt, there would be a difference between the returns you are getting and the cost of borrowing such that you’ll be able to retire that debt. Now, by and large what has been happening in Ghana is that we’ve been borrowing for consumption not for investment, i.e we borrow to spend and hence the returns we ought to get is not forthcoming, basically we just use it for ourselves. These are things we need our own funds to do, like building markets and co. we don’t need foreign loans to do this. The government hitherto has been borrowing for everything but if they say now they want to borrow for investments and for the investments they want to put the funds in the returns are going to be bigger than the cost then its good. But we need to clearly identify the kinds of investment. I know that they’ve setup an Infrastructure investment Fund where they hope that, the private sector would be tapped to do a lot of these things. Which then will require that much of these investments should be properly analyzed for their feasibility, then  going out to borrow we should ensure that the cost of borrowing is much lower than returns. 

GTB: Your views on the interest payments on these loans and with commodity prices falling how do we turn our economic fortunes around?

DL: The interest rate have nothing to do with it, they only have direct bearing in the sense that, they will think that, perhaps the risk of lending to us is so high that we have to pay some premium to compensate for it. It is understandable in that sense, but if you can think that an ordinary person out there in the west can borrow for less than 6% at current interest rate, if the government of Ghana is going borrow at 10.5%, then it means that the perception of the market is that the country is too risky. It’s mainly because of the debt load which is about 70% of GDP, so now you ask yourself where the funds are going to come from in other to continue servicing these debts. This implies that, we now have to add value to the things we do. Cocoa, for instance, there is a big demand which outstrips supply; basically it is not just for raw beans but for the refined products as well, like the butter and other cocoa products. It makes sense for the government to encourage people to go into those types of things so that those benefits would be there. Likewise gold and most of the things we do. We cannot just be primary producers, especially where we have the sort of debt load we have. So by and large, it is a wakeup call on the government, that we cannot continue to borrow yourself out of the current debt loads that we have, you’ve got to restructure your own market so that the first point of financing for your own needs, especially for the demands is to set up the domestic capital market and borrow the funds from here, it is only when you require foreign exchange in order for you to either pay for maturing debts, and it does not makes sense for you to leave the debts unpaid because that creates a perception that you cannot pay those debts.