Government’s decision to cut the Eurobond fund from 1.5 billion dollars to 1 billion as a result of investors’ insistence on a high yield of 10.75 percent means that Ghana would have to make massive adjustments to the 2016 budget.
Government’s initial intention was to invest 1 billion dollars in the budget to reduce the dependency on short-term expensive debts, while it channels the remaining 500 million dollars into refinancing domestic and external debt.
This was to enable government finance its liabilities promptly at the lowest cost with marginal risk, while it devotes attention to infrastructural investments such as schools, hospitals, and roads.
However, the substantial cut in the Eurobond, means that government is left with little options as it will be difficult to borrow from the domestic market which is already facing a crowding-out.
Finance Minister Mr. Seth Terkper has maintained that the deal was the best Ghana could get looking at the volatilities in the global economic scene.
“Ghana has now become the first sub-Saharan African country, outside South Africa, to issue a fifteen-year bond”, Mr. Terkper said.
According to him, financing the deficit through long term external facility such as the Eurobond is an integral part of government’s debt management strategy aimed at easing pressures on the domestic debt market.
Ghana’s debt stock to rise
Already, the International Monetary Fund, (IMF) in its new Fiscal Monitor report has cautioned Ghana, forecasting the public debt will increase to 72 percent of GDP by close of 2015.
As at July this year, figures released by the Ministry of Finance put the country’s public debt around 83 billion Ghana cedis, –– 62 percent of GDP.
The IMF’s fiscal monitor report, which examines the financial position of over hundred countries around the world, pointed out that Ghana would cross the 70 percent debt to GDP threshold.
The IMF has already classified Ghana as a High Risk Debt Distress Country, warning that immediate measures must be taken to reduce the public debt by freezing borrowing.
Credit rating agencies such as Fitch and Moody’s have all bemoaned Ghana’s rising public debt as government battles with high-interest payments of 25 percent on loans secured locally.
World Bank guarantee coming to the rescue
Reports indicate that a World Bank’s guarantee of 400 million dollars on the bond and government’s intention to set up an infrastructure fund to use proceeds from the country’s Eurobond played a key role in Ghana getting a yield of 10.75 percent.
The government of Ghana got a yield of 10 .7 percent as against an 11.5 percent initially demanded by investors in the week before.
This yield, which was higher than government’s initial target of 8.5 percent is also higher than previous bonds which had interest rates of 8 and 8.5 percent.
According to Reuters, other countries including Poland and companies from Russia and Turkey who issued bonds in the same period as Ghana received much lower yields between 5 and 6 percent.
