Parliament approves issue of US$1.5-billion Eurobond

Parliament on Thursday approved a request by the government to raise an amount of 1.5 billion dollar from the European Bond Market to manage Ghana’s liabilities and to support the 2015 budget.

One billion dollars out of the facility would be utilized to finance the 2015 budget to reduce the reliance on short-term expensive domestic debts, and the other 500 million dollars would go into re-financing domestic and external debts.

Finance Minister, Seth Terpker in making the request for the approval for the financing plan, told the House that the move would enable the country finance its liabilities promptly at the lowest possible cost with marginal risk.

He said the impact of the sovereign bond issue, which would diversify the country’s funding sources, would be “relatively neutral” to the overall debt stock, as it would mostly replace debt already included in the public debt stock.

The Minister told the lawmakers that though part of the bond would go into financing capital expenditures this year, the structure of the facility differed from previous Eurobonds.

He explained that the bond would be backed by the World Bank Policy Based Guarantee that would enable it (bond) to be issued with a higher rating than the current sovereign guarantee, in order to reduce interest rate.

The bond issue will also be backed by a sinking fund to be funded from the portion of the excess of the Stabilization Fund earmarked for debt amortization.

The amortization and the sinking fund plan, which is backed by the Petroleum Revenue management Act, will smoothen the redemption obligations between 2023 and 2026.

There were currently three Eurobonds outstanding with maturity profiles of October 2017 for the first bond of 531 million dollars, August 2023 for the second bond of 1 billion dollars and January 2026 for another 1 billion dollars.

The maturity profile of public debt indicates that currently, 75 per cent of domestic debt was short to medium term with short term debt constituting 39 per cent of the country’s debt portfolio as at December 2014.

According to the report of the Parliamentary Committee on Finance, presented to the House by the Committee’s Chairman James Klutse Avedzi, the 2015 bond transaction had been designed to achieve the government’s refinancing objectives and provide cheaper and longer term resources for financing the 2015 budget.

The report noted that the current maturity profile of the country’s domestic debts posed a number of challenges which included high risks associated with frequent rollover of short and medium-term debt because of volatile interest rates.

It said the current high domestic interest rate also indicated that rollovers were increasing the debt services component of expenditures, adding, “"The debt issue for the financing of the existing debt will create a fiscal space for a significant amount of domestic debt to be rolled over into longer maturity debt with lower interest costs."

But the Minority warned of the country’s rising debt stock, cautioning government of the possibility of the country going into recession as a result of excessive borrowing.