Terkper plans $750m Eurobond next year

Finance Minster, Seth Terkper has hinted that government will next year sell a $750 million Eurobond to finance its budget deficit, as access to non-concessional loans and donor flows begin to dry up.

The Minister in presenting the 2016 budget to parliament estimated next year’s budget deficit to be about ?8.4 billion, which will be financed through both foreign and domestic sources.

Following the decision of the central bank to cease financing government’s deficit from next year, government is looking to other sources of financing.

According to the budget statement that the Finance Minister tables before Parliament, Ghana will issue a ?3 billion sovereign bond (US$750 million), using an exchange rate of [?4=$1] as part of external sources of financing the deficit.

Next year's sovereign bond will be the fourth time in as many years that government will be borrowing from the Eurobond market, having issued $1billion valued bonds in the last three years.

The last of the Eurobonds issued last month was sold at an interest rate of 10.75 percent with a maturity period of 15 years, the longest issued by a country in sub- Saharan Africa outside South Africa.

Despite announcing that bond will be used to finance capital projects, the minister said the entire funds will be used to refinance maturing domestic debts.

The minister, speaking at a press conference on the use of the 2015 bond said: "We are going to use the bond to refinance 3-year and 90-day T-bills. It will benefit us if we discuss whether it is more prudent, even at 10 percent, to refinance the 3-year bond which is

due for example in two weeks' time; or whether it would have been better to refinance it domestically at 27 percent - increasing domestic interest rates and crowding out private capital," he said.

Deficit financing

According to Mr. Terkper, next year's budget deficit is expected to decline to 5.3 percent of GDP as against a projected figure of 7.3 percent for this year.

Financing for this year's deficit will be drawn from domestic sources at ?5.4 billion, with the external sources making up the remainder of ?3.4 billion.