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Business News of Wednesday, 22 June 2016

Source: citifmonline.com

Government’s undetermined bond a case of emergency - Dr. Ebo Tuckson

Government’s decision to return to the domestic bonds market barely a month after it failed to raise 500 million cedis to restructure its debt and retire maturing loans may be due to contingency developments, Economist Dr. Ebo Tuckson has suggested.

The Bank of Ghana (BoG) announced on June, 21 2016, that, it will raise an undetermined fund through the domestic bonds market at a minimum bid of 50,000 cedis with a face value of one cedi.

Even though this is not the first time government has hit the bonds market this year, its inability to raise the exact size of the bond has triggered some concerns on how Ghana’s debt stabilization strategy can be sustained.
On May, 26, 2016, government was able to raise GHC341 million but accepted only GHC303 million after it published a 500 million cedi bond.

Speaking to Citi Business News in an interview, Dr. Tuckson maintained that government’s desperation to raise the funds clearly shows that it is in an emergency situation.

According to him, with a shortfall in retiring its debts, government must go the extra mile to fulfill its debt obligation since it will have implications for the economy. “The normal bonds that are announced with the size are the ones government has planned for the year. I suspect that this one might be an emergency move to raise money to retire the loans,” he said.

He was of the opinion that the Ministry of Finance would have declared the size of the bond if it had been captured in the budget.

Touching on the impact on Ghana’s debt stock, Dr. Tuckson stated that the increasing debt stock is harming the economy.

“When it comes to sustaining the debt stock, we are not on track.
Unfortunately we are being told that we are borrowing to restructure our debts. All these show a sign of distress,” he said.

Questioning the rationale behind government’s bonds, Dr. Tuckson insisted that if the bonds have been prudently invested the proceeds could have been used to refinance them as they mature.

Government’s domestic bonds issued in 2016

This is not the first time government has attempted to raise funds through the
domestic bonds market in 2016. On January 7, 2016, government failed to obtain a similar amount of 500 million cedis bond it issued to restructure its debt and maturity settlement.

Total bids received at the time amounted to 426.23 million cedis. In May 2016, government accepted 1.123 billion cedis (294 millon dollars) for a three-year domestic bond with a yield of 24.5 percent.

Proceeds of the bond, which was open to offshore investors and sold through a book-builder’s system was expected to be used to finance the 2016 budget.

Total bids received at the time amounted to 1.13 billion cedis with 71 percent coming from offshore investors.

Government’s debt stock

Figures released by the BoG on March, 18,2016 indicated that as at December
2015, Ghana’s total debt stood at $25.6 billion.

According to the Bank of Ghana’s summary of macroeconomic and financial data, Ghana’s public debt as at December 2015 was 25.6 billion dollars, and in cedi terms 97.2 billion cedis.

Per the BoG’s data, Ghana’s debt hit 97.2 billion cedis in December 2015 up from the 96.9 billion cedis recorded in November of the same year. In October, 2015 the total debt was 96.3 billion cedis while in September 2015, it was at 91.6 billion cedis, and in August of that same year 94.8 billion cedis.

As at December 2015 the total debt stock of 97.2 billion cedis or 25.6 billion
dollars cumulated to 72.9 percent of GDP.

Of this figure the external debt hit 57.8 billion cedis in December, 2015 which is 43.3 percent of GDP. While in February domestic debt was 39.4 billion cedis making up 29.5 percent of GDP.

In January 2016, domestic debt went up to 40.6 billion cedis making up 25.6 percent of GDP, it however dropped to 39.9 percent in February 2016 making up 25.2 percent of GDP.