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Ghana doesn't need more debt

BY: Samuel K. Obour

By Dr Mark Assibey-Yeboah, the writerThe government, on June 14, 2013, requested the approval of Parliament for access to the international capital market to issue a second Eurobond of up to $1 billion.

The bond transaction is expected to close by end of July, 2013.

This seems like an idea way ahead of its time.

The issuance of the $1 billion Eurobond per se is not opposed, but it is important that to consider going to the market only when conditions are right; meaning that our credit rating must improve, our fiscal situation should get better and external factors must be favourable.

Fitch’s revision of the outlook on Ghana’s long-term foreign and local currency Issuer Default Ratings (IDR) from stable to negative still pertains.

An overall budget deficit of GH¢3.4 billion (3.8 per cent of GDP) in the first four months of 2013, against a target of GH¢2.7 billion (three per cent of GDP) does not suggest that there is tighter fiscal scrutiny by the government.

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In addition, global markets are jittery because of fears of a credit crunch in China and an indication that the US Federal Reserve’s ‘Quantitative Easing’ programme may be coming to an end.

All these will translate into the imposition of a bill of $70 million per year on Ghanaian taxpayers for the next 10 years, assuming we are fortunate to get a seven per cent yield.

 

Rising Debt Stock

Ghana has already accumulated too much debt in the past four and a half years.

The debt stock has more than quadrupled from GH¢9.5 billion at the end of 2008 to GH¢38.3 billion (43.2 per cent of GDP) as of April, 2013.

The issuance of the $1 billion Eurobond will just add to the government debt and in the process overburden the Ghanaian taxpayer with more debt servicing.

We should also expect that the issuance of the Eurobond will lead to a faster increase in our total debt. This is because the bulk of the $3 billion China Development Bank (CDB) loan (over 90 per cent) has not been accessed. With counterpart funds becoming available to trigger the disbursement of the loan, our debt stock could reach GH¢50 billion soonest.

This new borrowing only goes to confirm long-held fears that our public finances are not in the best of shapes and that our economy is in real trouble.

 

Quantum

Nigeria is also due to issue a $1 billion Eurobond to finance power projects later this year. It is instructive to note that Nigeria, the largest producer of oil and second largest economy on the African continent, is issuing the same quantum of debt as Ghana.

If Nigeria that has savings of $7 billion in its Excess Crude Account is issuing a debt of $1 billion, we must be careful not to bite too much than we can chew.

 

CDB Loan

After supervising the signing of two subsidiary agreements with the CDB for the release of US$1 billion to develop the nation's gas infrastructure in 2011, then Vice-President John Mahama remarked that “the World Bank said Ghana had a deficit of financing infrastructure of about $1 billion and so turning to emerging economies like China, Brazil and India to provide another source of financing, in addition to our traditional funding, will go a long way to improve the country”.

Two years on, we are back to square one and being told that $103 million of this new borrowing is needed as counterpart funding for already approved projects, with a further $284 million needed for capital expenditures in the 2013 budget.

Did we go or did we come? Were we not made to believe that the CDB loan was the panacea to our infrastructure deficit?

By Dr Mark Assibey-Yeboah

(The writer is the Member of Parliament for New Juaben South. He previously worked as an Economist at the Bank of Ghana).