Business News of Wed, 5 Sep 201810
100-year bond will ruin economy – Ato Forson
Ranking Member of the Parliament Finance Committee and Member of Parliament (MP) for Ajumako/ Enyan/ Essiam Constituency in the Central Region, Mr Casiel Ato Forson has warned that Ghana’s economy will be ruined if government goes ahead with its planned issuance of a century bond worth $50 billion.
The idea of raising century bond worth $50 billion was mooted by President Akufo-Addo during his state visit to China.
According to him, the move by the Finance Ministry was to “provide us with the resources to finance our infrastructural and industrial development.
But the MP Ajumako-Enyan-Essiam is of the view that this singular act will have dire consequences on the Ghanaian economy such as weakening balance of payment, deteriorating exchange rate, a rise in interest rate, and the Crowding out of the private sector.
“Assuming the $50 billion was issued at a coupon rate of 7% per annum for the 100 years the taxpayer would be required to service the debt to the tune of $3.5 billion per annum for that period”, he stated in a statement he issued on Tuesday.
Mr Ato Forson further explained “If all other things remain the same, it means that an amount of $350 billion will be used to service the debt over the period. Why do you commit a country for 100 years if you are not too sure of the debts servicing and future repayment?”
He describing the move as “puzzling”, he therefore entreated President Akufo-Addo to be reminded he has a four-year mandate of which he has exhausted two years already thus he should not “hang Ghanaians to an everlasting bond of 100 years.
“Mr President, a good father leaves a good inheritance. Let posterity vindicate you and not victimize you. Please don’t leave us with this huge debt.” The statement added.
Below is the full statement
The $50 Billion Century BOND
During President Nana Addo Dankwa Akuffo Addo’s visit to the People’s Republic of China, he made it known that the Ministry of Finance and Economists in Ghana are considering floating a $50 billion Century Bond to provided resources to finance infrastructural and industrial development projects in the country.
I find this idea of floating a $50 billion Century Bond by this Government rather puzzling. It was this same Government that rejected a 40-year Development Plan aimed at putting the country on the path of prosperity and long term development, on the pretext that the planned period was too long. Now the Government is considering committing a sovereign nation to a 100-year bond.
The nominal GDP of Ghana is currently projected at about GH? 242 billion by end December 2018. Using a projected GH?/USD exchange of 5.1 by end December 2018, the projected Nominal GDP in USD by December 2018 is about $47 billon.
With a projected debt to GDP ratio of say 70% (?70%), if the government is successful with the issuance of the Century Bond, the additional debt of $50 billion will automatically increase the public Debt to GDP ratio to about 180%.
The projected tax revenue to GDP ratio of about 16.9% is just enough for debt servicing and payment of wages and salaries including Gratuity (compensation). As a result, the Government is currently borrowing to settle statutory payment such as GETFUND, DACF, NHIL, RoadFund, etc. when due. Government is also borrowing to pay recurrent expenditures, such as discretionary spending on goods and services, and capital expenditure.
An additional debt of this magnitude will completely crush the already fallible Ghanaian Economy. The economy lacks the capacity to support additional debt service for a $50 billion debt instrument. Any attempt to issue such a bond will result in a default of Debt service for Ghana.
Ghana as country does not have an already prepared project of up to $50billion. Preparing a project of up to $50 billion for infrastructural and industrial development projects may take a minimum of 12 months, after which it will take 36 to 60 months to complete its implementation.
Why should the Government Borrow $50 billion to sit in an account whilst it pays coupons on the debt for 36 – 60 months before full utilization. In this regard, it is in the interest of the people of this country to be well informed about the financing terms of the Century Bond.
Ghana recently issued a 30 year bond at coupon rate of 9.6%. Even if we assume that the $50 billion bond is issued at a coupon rate of 7% per annum for a 100 year period, it means that the tax payer will be required to service the debt to the tune of $3.5 billion per annum for a period of 100 years. If all other things remain the same, it means that an amount of $350 billion will be used to service the debt over the period. Why do you commit a country for 100 years if you are not too sure of the debts servicing and future repayment?
Considering the fact that Ghana’s total revenue is only enough to service current Debt and Wages and salaries. An additional Debt servicing of $3.5 billion will mean that Ghana will be borrowing from the domestic market an additional cedi equivalent of $3.5 billion from the domestic market to service the Debt.
This singular act will have dire consequences on the Ghanaian economy such as weakening balance of payment, deteriorating exchange rate, a rise in interest rate, and the Crowding out of the private sector.President, be reminded that Ghanaians gave you a four (4) year mandate, out which you have served almost two (2) years. Please, do not hang Ghanaians to an everlasting bond of 100 years.
Mr. President, a good father leaves a good inheritance. Let posterity vindicate you and not victimize you. Please don’t leave us with this huge debt.
Lastly Mr. President, we hope that you have not been misled.
God bless Ghana
CASSIEL ATO FORSON, MP
Ajumako/ Enyan/ Essiam Constituency and Ranking Member of the Finance Committee