Business News of Wednesday, 20 February 2013

Source: GNA

Gov't considers issuing long term bonds

Government has indicated that it is in talks with the World Bank Group to determine if it could further extend the tenor for its bonds aimed at boosting infrastructural development in the country.

Seth Terkper, Minister of Finance & Economic Planning, who disclosed this at Standard Bank’ West Africa Investment Forum yesterday in Accra, said government wants long-term bonds of between 12 and 15 years because it intends to open up the economy and facilitate private investment through public-private-partnership to expand infrastructure.

Also, he said government is considering exporting power to expand into oil services, adding, “We want to make Ghana a hub of the oil services industry.”

“There are also strategies to boost investment in oil and gas and also in the agro-services sector.”

Touching on why the country recorded a huge budget deficit for 2012, he noted that the petroleum subsidies by Government was responsible for that, adding the public sector wage policy contributed to the widening of the budget deficit.

He mentioned that the non-payment of corporate income tax by some oil companies operating in the country, as a third factor, contributed to the widening of the budget deficit, which registered 12.1 percent of GDP.

Fitch, a global ratings company, rated Ghana negative recently following the wide gap in the budget deficit.

“We are desirous of improving corporate finance. We have tax holidays but we don’t have accelerated tax provisions,” Mr Terkper indicated.

Historically, from 1990 until 2012, Ghana Government Debt to GDP averaged 61.78 percent reaching an all time high of 125.40 percent in December of 2000 and a record low of 26.20 percent in December of 2006.

Generally, government debt, as a percent of GDP, is used by investors to measure a country’s ability to make future payments on its debt, thus affecting the country’s borrowing costs and government bond yields.

Government debt, as a percent of GDP, also known as debt-to-GDP ratio, is the amount of national debt a country has in percentage of its Gross Domestic Product. Basically, government debt is the money owed by the central government to its creditors.

There are two types of government debt: net and gross. Gross debt is the accumulation of outstanding government debt, which may be in the form of government bonds, credit default swaps, currency swaps, special drawing rights, loans, insurance and pensions.

Net debt is the difference between gross debt and the financial assets that government holds.

The higher the debt-to-GDP ratio, the less likely the country will pay its debt back, and more likely the country is to default on its debt obligations.