US$3 billion bond issuance: Ghana could be 'punished' with high interest rates – Prof. Quartey

Director of Research at the Institute of Statistical, Social and Economic Research (ISSER), Professor Peter Quartey has admonished government to desist from excessive borrowing particularly in the pandemic-driven era.

His comments come after government through the Finance Ministry announced a successful US$3 billion zero-coupon bond issuance on the international capital market.

Addressing participants during the 4th edition of Media General’s Economic Dialogue series, Prof Quartey indicated that Ghana borrowing from the international capital market would come back to “bite” the country in the long run through high interest rates.

“This is not the time to be borrowing, because the market will punish you, government has to boost its domestic revenue mobilisation efforts in order to have the needed fiscal resources to run the country,” Prof. Quartey cautioned.

The Economist advised the government to further implement stringent measures to boost its revenue mobilizations efforts as opposed to aggressive borrowing.

What is a zero-coupon bond and Ghana’s role

A zero-coupon bond is a bond that does not make periodic interest payments during the tenure of the bond, but is sold at a discount to its value at maturity.

The bond which is first of its kind comes with four-year maturity, alongside a seven-year, 12-year and 20-year instruments which would be used to address post-COVID-19 challenges and improve the cash flow required for debt servicing.

Ghana earlier contracted the Bank of America Corp., Citigroup Inc., Standard Chartered Plc, Standard Bank Group Ltd. and Rand Merchant Bank Ltd. as lead arrangers to commence investor meetings for the sale of the bond on the capital market.

This would make Ghana the first Emerging Market Sovereign to add a zero-coupon bullet tranche to its bond financing portfolio and this is expected to enable the Government of Ghana to create fiscal space to build the economy back from the negative impact of the coronavirus pandemic.