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Govt utilises Sinking Fund

Author: Emmanuel Bruce
Mr Seth Terkper
Mr Seth Terkper

Government has used a portion of the Sinking Fund proceeds to redeem US$30 million of the Sovereign Bond issued in 2007, the Minister of Finance, Mr Seth Terkper, has disclosed.

This leaves about US$500 million to be redeemed by October 2017, which the government is planning to retire through a bond to be issued from the capital market in 2017.

Mr Terkper disclosed this when he appeared before Parliament to present the supplementary budget and mid-year budget review.

As part of efforts to reduce the government’s over reliance on short term domestic instruments to finance long term projects and to restructure its fiscal position and debt tenor. The government issued the country’s first eurobond in 2007.

The 10-year bond, which raised some US$750 million, is due to mature in October, 2017.

The finance minister said should the capital market be unfavourable, it intended to dedicate the balance of the Sinking Fund, as buffer in a programme to redeem the Bond.

He said government would further boost the buffer by using part of the US$233.5 million of the remaining balance of the 2015 Bond proceeds and also review the cap on the Stabilisation Fund to US$100 million to enhance flows into the Sinking Fund.

“Our short-term target is the 2017 Bond but the medium-term focus is to use the Sinking Fund to manage all our domestic and external Bonds and not to wait for them to mature before we seek to refinance them,” he stated.

About Sinking Fund

Parliament in 2015 approved the setting up of a Sinking Fund from funds above the cap on the Petroleum Revenue Management Act’s (PRMA) stabilisation fund.

The purpose of the fund was to periodically redeem the country’s external and domestic debt, especially current bullet loans.

The finance minister indicated that, as at April 2016, an amount of about US$100 million had accumulated in the Sinking Fund.

 Sovereign Bond Advisers’ Mandate

Government also recommended the extension of the mandate of the 2016 sovereign bond advisers to 2017 due to the risks posed by a likely unsuccessful roll-over or buy-back of the 2007 Bond, and the follow up events in 2017 after the elections.

Mr Terkper said that would make its engagement with markets continuous to the end of 2017 and assure investors of its commitment to the markets, despite political events in the country.

On the domestic debt instruments front, he said, as of the end of June 2016, an amount of US$257.26 million (GH¢986.1 million) of the 2015 Eurobond was used to pay down (repurchase) government’s short term domestic debt instruments. 

He said this was part of the plan to restructure domestic debt by extending the maturity profile to allow for a more realistic buy-back and “bullet” debt reduction programme. 

“Already, the plan has seen yields on short term domestic debt instruments declining since October 2015,” he stated.

“The lesson for the nation is obvious: we must give full support to the government’s Sinking Fund, “Buy-Back”, Debt Service Reserve, and Amortisation (principal plus interest) policies to avoid the situation where we face significant “roll-over” risks in the future,” he added.

He believed this was a healthier way of financing development over a sustainably long time on the capital markets which was the practice in Middle-Income and Advanced countries.