Ghana’s finance minister hopes to tap international capital markets for the fourth time in as many years, but dismissed concerns that government spending and borrowing ahead of elections increased the risk of the nation’s debt becoming unsustainable.
Seth Terkper said the Treasury would like to issue a new bond by the end of the year, despite Ghana having to scrap plans last month to sell a $1bn eurobond after investors expressed concerns that the government would struggle to meet its fiscal targets.
Mr Terkper said he wanted to avoid paying a premium if the US raised its interest rates, adding that he “could price [the bond] tomorrow”.
The government’s plan to increase borrowing comes ahead of presidential and parliamentary elections in December. Campaigning is already under way, with the opposition accusing the ruling National Democratic party of corruption and mismanagement of the sluggish economy.
A spending spree before 2012 elections ballooned the budget deficit, which reached a high of nearly 11 per cent of gross domestic product. That put West Africa’s second-largest economy on unstable ground ahead of the slump in commodities prices. The government was forced to turn to the IMF for a bailout plan of nearly $1bn last year — the first African state to do so in the wake of the commodity price fall.
Mr Terkper said the proceeds of a new eurobond would be used to refinance existing debt and “support the budget”. But he insisted that the government was not about to repeat the spending spree that preceded the 2012 elections.
“We will avoid the pre-election spending boom … and do what it takes to make sure that this phenomenon is behind us,” said Mr Terkper.
Debt levels in Ghana, which exports cocoa, gold and oil, are among the highest in Africa, standing at 63 per cent of GDP, according to Mr Terkper. Issuing a sovereign bond of $1bn would increase debt to above 70 per cent of GDP.
Mr Terkper said the government was trying to stay within its fiscal targets, adding that it had lowered its targeted budget deficit for 2016 from 5.3 per cent of GDP to 5 per cent.
But some experts warn that taking on more debt is risky — debt service costs are already the second biggest item in the budget behind public sector wages.
“I am at a loss as to why they would go to the market now,” said Joe Abbey, head of the Centre for Policy Analysis in Accra.
A former finance minister, he cited Ghana’s history of borrowing heavily in election years.
“Our past is haunting us. We’re seen as turning, especially in election years, to the printing press and trusting the central bank to provide financing,” Mr Abbey said. “Given the high risk of debt level distress, we should not find people playing politics.”
His views underscore uncertainty over the government’s management of the economy.
An IMF delegation was in Accra last week for talks over issues that prevented it from disbursing $115m of its loan package that should have been released over the summer.
The fund said in a statement on Monday that “understandings” were reached on many issues. But it added that it had “outstanding questions” related to legislation recently passed by parliament that allows the government to use central bank funds to finance the deficit. It was not clear when the IMF funding would be released.
Five years ago, Ghana was on the cusp of a hydrocarbons boom and a star performer on the continent. But the fall in commodity prices, coupled with electricity shortages, caused economic growth to plummet from 8 per cent in 2012 to 4 per cent in 2014.
Mr Terkper said the start of oil production at the TEN offshore field last month would help the economy bounce back. The cedi, Ghana’s currency, which lost almost a third of its value in 2014, has also been stable this year and inflation has slowed in recent months, although it is still running at more than 18 per cent.
But the government and the IMF forecast growth at just above 4 per cent this year, raising questions about whether a recovery has begun.
The IMF and bankers are particularly concerned about the debts of state-run electricity companies, estimated at between $1bn and $2bn.
A power crisis has eased since last year. But bankers say the financial problems facing the sector are not over.
“There isn’t much room to manoeuvre in the debt market . . . we may have maxed it out,” said Peter Enti, partner and portfolio manager at the Africa-focused asset management firm Nubuke Investments.
Source: FT/OTCEER
