'$1billion Eurobond funds solely for debt refinancing'

Mr. Seth Terkper, Minister of Finance says the one billion dollars ($1billion) raised with Ghana’s recent Eurobond issue would be used to only refinance the nation’s existing debts which are maturing.

He said although the initial plan had been to raise $1.5 billion; with a World Bank guarantee for $1 billion of the amount to be used for debt financing whilst the remaining $500 million is used as a new capital, market conditions in the global market had made the Ministry to go for $1 billion instead.

In accordance with World Bank’s guarantee conditions, the entire $1 billion, which was raised with a $400 million World Bank guarantee, would be used to refinance Ghana existing debts, particularly the 2007 Eurobond, which is set to mature in 2017.

He however maintained that since Parliament had approved $1.5 billion, there was still an opportunity to go back to the market; either the domestic bond market or the international market and borrow the extra $500 to cover the deficit.

Mr. Terkper explained that Ghana’s 2015 Eurobond was its fourth, with previous ones issued in 2007 (10 years), 2013 (10 years), and 2014 (10 years) which raised $750 million, $1 billion and $1billion respectively.

The outstanding balance from the previous bonds are: $530,510,000 on the 2007 bond and $1billion each for all the other bonds with maturity dates in 2017, 2023, 2026 and 2030 for the latest issue.

The 2015 issue is the first Eurobond with 15-year tenure, but comes with the highest coupon rate of 10.75 per cent due to the global pressures facing emerging markets.

According to the Minister, global conditions in the world economy had posed major challenges to emerging markets including Ghana. These included the recovery in the United States of America, the world’s greatest economy, weaker-than-expected economic indicators in China, the second greatest economy, exchange rate depreciations, and Brazil’s downturn amidst weakening commodity prices.

Ghana suffered setbacks due to decline in commodity prices, shortfall in energy leading to the ‘dumsor’ crisis, as well as inflation increases.

He noted however that Ghana medium term outlook was good considering the investments government had made in the economy, especial in the energy sector, including those in gas processing. He said the finding of new oil in the TEN fields, reforms in the public sector financial management among others were good indications for the medium and had boosted investor confidence during the Eurobond road show.

He stressed that government was committed to continue in the path of consolidation, living within its means and also putting structures in place to minimize the country’s debt acquisition.

Mr. Samuel Ackhurst, Director Debt Management Division of the Ministry of Finance said its debt management strategy would ensure a reduction in debt risk for the country. He said a major initiative that would help in that direction was the initiation of Municipal bonds to finance developmental projects by Metropolitan, Municipal and District Assemblies (MMDAs).

He explained that this initiative, when launched, would put MMDAs in a position to issue their own bonds to raise funds to finance projects in the municipalities as was done in other countries like Nigeria and Kenya. This, he noted, would take some of the burden for such project of the budget and decrease debt while allowing the budget to focus on long term infrastructural projects.

He conceded however, that in order for this to be successful, MMDAs would have to prove to investors that they are capable of mobilizing revenue to pay for such project, for instance by instituting measure to ensure collection of and security of property taxes in the municipalities.

Other measures include shifting to financing capital projects that can be self-financing, shifting from unfettered sovereign guarantee to project guarantees and insurance, use of on-lending and escrow policy and creation of the Ghana Infrastructure Investment fund.

In order to prevent bullet payment of the country’s debt, the ministry is also using a sinking fund mechanism and management of debt where funds are consistently put into the sinking fund and used to finance the debts when due.

Currently Ghana’s sinking fund currently has about $100 million in it.