Gov’t borrows GHC500m to pay debts

Government, through the Central Bank, is inviting bids from both resident and non-resident investors for the issue of a GHC500 million 3-year fixed rate bond through the auction process.

Slated to be held on 26th May, 2016, a letter signed by Caroline Otoo, Secretary to the Bank of Ghana (BoG) and dated May 20, this year, which made this known, said the instrument, which would be Ghana cedi-denominated and issued at par, will go into restructuring government debt and for maturity settlement.

“Each bond shall have a face value of one Ghana cedi. The minimum bid shall be GHC50,000 and multiples of GHC1,000 thereafter.”

The Central Bank said interest payments on the borrowed funds shall be made semi-annually from the issue date, in May and November, adding that the Bond shall be redeemed by the issuer on the maturity.

Withholding tax

It added that all payments in respect of the bonds by or on behalf of the issuer shall be subject to withholding or deduction for, or on account of taxes, save that in relation to non-resident bondholders, the issuer agrees to pay such additional amounts as may be necessary in order that the net amounts received by such non-resident bondholders after the withholding or deduction, shall equal the respective amounts which would have been receivable in respect of the bonds in the absence of the withholding or deduction.

“For the avoidance of doubt, this tax gross-up provision shall be for the benefit of non-resident bondholders only.”

It continued that the register will be maintained on a book-entry system on the Central Securities Depository and therefore no certificates will be issued.

Again, the security shall be listed on the Ghana Stock Exchange (GSE) for secondary market trading both at the floor of the Exchange or over the counter (OTC).

$1 billion Eurobond

The International Monetary Fund (IMF) recently gave government the green light to borrow from the international market to finance its debt.

Finance Minister, Seth Terkper, in December last year, moved a motion in parliament requesting approval for government to raise up to $1 billion on the international market to fill a 2016 budget funding gap of $750 million, while the remaining $250 million will be used to refinance a previous Eurobond that matures in 2017.

Gov’t piling debt burden

Dr Mahamadu Bawumia, Vice Presidential Candidate of the New Patriotic Party (NPP), in March this year, complained about the high debt to GDP ratio of the country which he said hovered around 70 percent and deemed to be dangerous and unhealthy for the economy.

He said Ghana was indebted to the tune of GHC99 billion but government quickly quoted GHC97.2 billion.

Yet on a weekly basis, Bank of Ghana kept borrowing money from both domestic and foreign investors on behalf of government and such accounts were not considered.

To date, the actual debt size of government has continued to be GHC97.2 (as at end December 2015) while all new funds borrowed since January this year has not been factored into the computation of the actual total national debt.

Inflation

Dr Bawumia added that the high inflation was also fanning the high prices of fuel, food and utilities even though the salaries of workers remained the same.

“What is most shocking is that His Excellency President Mahama clearly does not know the value of exactly how much this NDC government has borrowed in the last eight years,” he pointed out.

Recently, he drew attention to the diversion of $250 million from the Ghana Infrastructure Fund in the Bank of Ghana to a private bank.