A Fellow Chartered Economist and Chief Executive Officer of the EBEN Consultancy, Dr Ebenezer Ashley, has commended the Finance Minister, Mr Ken Ofori Atta, for his effort in securing the US$3 billion Eurobond, which was oversubscribed five times the target.
According to him, it is never easy for any economy to secure a bond in the international market with an overextended payment period, and that achieving such a feat meant that there was investor confidence in the management of the economy.
“It’s not an easy task for any economy to attract a long term bond in the international market and if it so happens then it means the fundamentals of the economy, in the medium to long term, have been assessed by the investor and found to be very strong”
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“The country is deriving the benefits of being rated positively by the three credit rating agencies, like standard and board, moody and trading economist”, he explained.
Confidence in economic fundamentals
Talking to the Ghanatalkbusiness.com in a telephone interview, Dr Ashley, stated that a cursory look at the behaviour of the financiers in the Eurobond roadshow in America and Europe point to the fact that they banked their confidence solely on the strength of the fundamentals of the economy.
“It’s quite obvious that the investors did not provide the funds with the current government in mind because the government might not consistently be in power for all these period. However, the kind of economic measures being put in place, they believe, will be maintain by successive government to make it easier for repayment”, he said.
He explained that the international investors did this with the hope that the impressive outlook of the country’s economy would be maintained beyond this current government, hence the risk to subscribe to the 41-year bond.
Government, this week, secured a total of $15 billion Eurobond, representing a five times oversubscription of the targeted US$3 billion Eurobond in three tranches with premium rates better that what was realised in similar bonds issued last year.
The three tranches were issued with a 7-year, 14-year and 41-year maturities at coupon rates of 6.375%, 7.75% and 8.75 per cent for the 7-year, 14-year and 41-year bonds, respectively.
Some industry players have raised concerns with the coupon rates, saying that the bond was oversubscribed because the rate was exorbitant.
Some have also questioned whether the country was not overstretching it debts horizon, considering the fact that the highest yield on the local bond market was the 2-year bond issued at 20.95 per cent.
However, the Chartered Economist is of the view that there was nothing to be worried about rates are not on the high side.
“If you look at the premium, which ranges from 6-9 per cent you will realise it’s on the low side and so, if the domestic market is quoting 20 per cent and loan in the international market is attracting around 9 per cent, I don’t think it’s on the high side”, he disagreed.
Again, some experts have also raised fears that the US$3 billion Eurobond will balloon public debts. Others have also raised issues with the seeming lack of adequate developments to commensurate with increasing levels of Government borrowing which has put the country’s debt to GDP ratio to 63 per cent
But, Dr Ashley, insisted that the problem was not with the borrowing, as every government will borrow, but how to ensure that the debts, as being accrued, do not overshadow and crowd out the country’s developmental efforts.
He said there was a difference between the way and manner the past Government borrowed as compared to what this current one was doing, explaining that “the previous government did what is termed in economic parlance as borrow short to pay short”.
Managing Government Debt
This, he explained, as “going into the financial market to borrow for a two-year period and then to pay a current debt of the current year and so by the time you pay off the debt and try to mobilise funds to embark on infrastructural facilities the payment of the is due so you must direct the money into repayment of the debts. So you have no fiscal space”.
He said the current government was borrowing to re-profile the debts bequeathed to it by its predecessors in order to create some fiscal space for the development of the country.
Salifu BB Moro, ghanatalksbusiness.com