Government has been forced to scrap the 5th Eurobond sale due to the reaction of international investors which has vindicated Dr Mahamadu Bawumia, Vice Presidential candidate the New Patriotic Party (NPP), who in May, this year advised authorities against the move.
The former Deputy Governor of the Bank of Ghana (BoG), on May 5, this year, was invited to deliver a lecture at the Accra Polytechnic on ‘Youth Unemployment, Causes and Solutions.’
In the course of his presentation, he bemoaned government’s reckless borrowing which had increased Ghana’s debt from GH¢9.5 billion in 2008 to GH¢105.1 billion.
He also pointed out that poor debt management was one of the causes of unemployment because it had imposed a high interest burden on the economy and depleted huge financial resources that could have been used to create jobs to reduce unemployment.
Furthermore, he said the resulting high interest rates had reduced investment, crowded out the private sector and resulted in a steep decline in economic growth.
However, his statements were strongly condemned by government officials.
Pulling the brakes
In a statement issued by the Finance Ministry, government noted that it would continue to build on its dialogue with international investors while monitoring the markets and the IMF board process with respect to the 3rd review, adding that it would “issue new notes at the optimal time and the right conditions.”
Analysts raise eyebrows
Analysts raised concerns about the high interest rates investors were demanding for Ghana’s bonds despite a general fall in the rates of other bonds issued by other countries in sub-region.
Celeste Fauconnier, Nema Ramkhelawan-Bhana and Neville Mandimika, analysts at Johannesburg-based RMB, told Bloomberg on Tuesday that the cost of floating the bond looked prohibitively expensive while the risk of debt distress remained high.
“We do not believe the faith in the market is strong enough to prevent an expensive transaction,” they said.
“It’s not an entire surprise,” Nicolas Jaquier, an emerging-markets economist at Standard Life Investments Ltd in London, said by phone.
“The timing of the new issue was a bit puzzling, coming to issue a bond just before some of the pending issues with the IMF were being ironed out. That’s what kept many investors away.”
“It is 30 percent pricing and 70 percent bad timing,” said Richard Segal, an analyst at Manulife Asset Management, who attended an investor meeting on Monday.
“Investors asked more than they were willing to pay.”
Ghana’s IMF Programme is currently under the spotlight after the failure of the Fund to present the third review to the IMF Board and the government’s decision to reject a proposal to enact a zero Central Bank financing law.
Parliament recently passed the Bank of Ghana (Amendment) Bill, 2016 into law which now mandates the government to borrow 5 percent of revenue generated in the previous fiscal year instead of the 10 percent.