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Business News of Wednesday, 9 November 2016

Source: B&FT

Gov’t GHC200m domestic bond unattainable - Dr. Lord Mensah

An economist, Dr. Lord Mensah has cast doubts on government’s plans to raise some GHC200 million by issuing for the first time, a 10-year domestic bond to finance critical capital and recurrent expenditure.

According to Dr. Lord Mensah who lectures at the University of Ghana's Business School, the timing for the local bond is wrong and will not attract the needed patronage.

"Government may not even be able to raise the full amount of GHC200 million due to the tight economic conditions businesses and individuals are facing in the country," he said.

The decision to issue the decade-long bond a month before the nation goes to the polls follows the recent successful issuance of a US$50 million dollar-denominated bond, which drew concerns about dollarization of the economy.

Dr. Lord Mensah, however, is concerned government’s appetite for borrowing could cause a debt overhang that might come back to haunt the country’s economic fortunes at a time the economy this year is projected to grow the slowest in more than two decades.

"We are growing as a country but how are we growing? Are we growing as a country where at the moment we are looking to pile up our debt, which is already on the high side plus the interest that we are servicing on these debts.

"We are not saying that we should not grow as a nation but it has to be done moderately. Because we have access to credit, we always run after it and pile up the country's debt which has gone beyond HIPC levels," he said.

Ghana’s total public debt now stands at GH¢109 billion as at July 2016, which translates into about 65.9 percent of GDP, according to data released by the central bank.

The debt stock, according to the central bank, grew from GH¢101.1billion in January to about GH¢108.9 billion as at the end of July this year.

In terms of the composition of the debt, there was virtually no increase in the external debt component, which only rose to GH¢60.7billion from GH¢60.6billion, and remained at 36.4 as a percentage of GDP. But then the government picked up US$750million Eurobond in September.

Total interest payment is estimated at GH¢10.5billion, equivalent to 6.6percent of GDP and 24.1 percent of total expenditure. Of this amount, GH¢2.2billion will be expended on external interest, while GH¢8.2 billion will be for domestic interest payments.

Also the amount to be spent on interest payments this year dwarfs the GH¢6.7 billion planned for capital expenditure. As a percentage of total expenditure, interest payments will account for about a quarter while capital expenditure makes up 12.7 percent.

Dr. Lord Menash further added: "We cannot continue to use the country as a collateral and at the end propelling the debt levels which are unstainable."

The Economist Intelligence Unit (EIU) in May this year projected that Ghana’s debt-to-GDP ratio will hit 75.8 per cent by the end of 2016 with a nominal Gross Domestic Product (GDP) of GHC166.9 billion up from GHC139.9 billion in 2015.This means the country’s total public debt stock could hit GHC126.6 billion by the end of this year.

Nonetheless, government argues that its latest foray into the domestic bond market is to raise much needed capital to support infrastructure projects.

The deal which will be opened to residents and non-resident investors, is expected to be done through a book-building transaction that will opened on Wednesday November 8, 2016 and close within 48 hours on Thursday November 11, 2016 for final pricing.

According to the statement published on the bank of Ghana website, each bond shall have a face value of only one Ghana cedi and the minimum bid will be GHC50,000 and multiples of GHC1,000 thereafter.

Also it is expected that all successful bids will clear at a single clearing level Pro rata allocation.

Monday November 14, 2016 will be the settlement or Issue date for all those whose bids will be accepted by the government.

The issuance also forms part of government’s revised calendar for August to December this year where it intends to raise up to some GHC25.3 billion.

Of this amount, GHC23.8 billion has been allocated to be used to settle pending bonds or notes nearing maturities with the remaining amount of money being some GHC1.4 billion being fresh issuance which will be used to meet government’s financing requirements.

The book runners for the issuance are Barclays Bank Ghana, Stanbic Ghana and Strategic African Securities.

Meanwhile the amount as per pervious arrangements will be listed on the Ghana Stock Exchange.