Terkper rules out spending spree before poll

Finance minister, Seth Terkper 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 $lbn 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 Congress 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 $1 billion 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 pre­election 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 $lbn 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 $115 million 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 company, estimated at between $1 billion and $2 billion. A power crisis has eased since last year. But bankers say the financial problems facing the sector are not over.