Ghana hunts for US$1bn bonds
Government plans to float a U$1 billion mid-year sovereign bond to fund the country's critical infrastructural needs.
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Finance Minister Mr Seth Terkper confirmed to the Graphic Business in a telephone interview that a technical committee at the ministry was working on the documentations of the bond papers to be submitted to cabinet later this week, but declined to give further details.
However, official sources said, government would sell a billion dollar bond in June this year to meet the country’s pressing domestic needs.
President John Dramani Mahama has said at the Times Africa CEO Summit in London that, “We are floating the bond to pay down some very high interest credit from the domestic market, to bring down our interest payments, and to bring the deficit back on track”.
The bond is expected to reduce the fiscal deficit to six per cent of Gross Domestic Product (GDP) the 2012 high of 12 per cent.
Demand for higher-yielding debt is opening up a new source of funding for some African countries including Ghana, which is tapping the market for the second time. For investors, the debt sales offer exposure to growing economies, with a better return than they would receive in more-developed markets.
But Ghana has fallen out of favour, the country has lost a little bit of its shine. It used to be the poster child for the region when it issued its euro bond.
The International Monetary Fund had already sounded a warning on Ghana's fiscal deficit, saying the country would post an above-target deficit of 10 per cent of gross domestic product (GDP) this year and plans for reducing it were inadequate.
"The IMF projects a reduction in the budget deficit to 10 per cent this year," said Christina Daseking, leader of the IMF mission to Ghana. "Excessive government borrowing is raising the cost of credit to the private sector."
"The government's deficit target of six per cent of GDP by 2015 will keep public debt high and buffers low so the mission recommended an additional fiscal adjustment of three per cent of GDP by 2015," Daseking said. "A ballooning wage bill, if untamed, will bring debt to levels that could endanger government's transformation agenda."
Ratings agencies Fitch and Moody’s have warned that Ghana’s sovereign credit ratings could be downgraded if the fiscal situation does not improve dramatically in 2013.
Fitch Ratings, which last week lowered the country’s credit-rating outlook from stable to negative, served notice that a “failure to set out and implement a credible fiscal consolidation plan as well as improve expenditure control” could lead to the downgrading of Ghana’s B+ Long-term Foreign and Local Currency Issuer Default Ratings.
In 2007 Ghana relied on positive assessments by ratings agencies to sell its debut US$750million Eurobond. Standard & Poor’s and Fitch Ratings had rated Ghana B+ with a stable and positive outlook respectively, ahead of that bond sale, which was oversubscribed by almost 400 per cent.
But President said government will be more strategic about public debt in the future. “One of the decisions we’ve taken is not to do everything on the public debt. For organisations, for projects, that has a revenue-generating capacity; let them borrow off their own balance sheets. We will use public debt only for most essential socio-economic aspirations,” he said.
Among other things, President Mahama had promised to build 200 new school blocks within his first four years, bolster crumbling water and power infrastructure, pave roads outside Accra and sustain economic growth at eight per cent or more.
Analysts say a stumble could prove politically costly for President Mahama and financially disastrous for Ghana as it seeks to retain its access to credit to fund rapid growth.
At the moment, Ghana’s public sector wage bill increased fourfold over a three year period, with salary costs jumping 47 per cent in 2012. “We had started to implement a universal salary structure and couldn’t really control how incomes rose,” President Mahama recalls.
Public spending had risen during the election year. “We need to solve this cyclical problem of losing macroeconomic stability during election years. There is pressure to spend huge amounts for infrastructure investments by government. Often when you yield to those pressures it moves the economy out of sync”.
Ghana is also grappling with power and water infrastructure problems, which government sources say will require hundreds of millions of dollars to fix. Payments to private-sector healthcare providers and some public-sector workers are also in arrears.
For now, the country’s pressing domestic needs, which required broader conditions have also pushed the government into action. “I think the market is about right now,” said President Mahama. “There’s quite a high appetite for it, we’ve got a lot of inquiries already.”
Story: Suleiman Mustapha