Loans leave Ghana on the edge of bankruptcy
from MASAHUDU KUNATEH in Accra, Ghana
ACCRA, (CAJ News) – IN spite of denials by fiscal authorities, Ghana has been relegated to the unenviable group of heavily indebted poor countries (HIPC) as years of an insatiable appetite for borrowing catches up with West Africa’s second-biggest economy.
And the prospects look dire after the country last week launched a $1 billion Eurobond, its fourth, becoming the first country in sub-Saharan Africa outside of South Africa to issue a 15-year bond, at a coupon rate of 10,75 percent.
As a result, already searing under a declining economy, Ghana is expected to cough up $107,5 million a year for the next 15 years in interest payments on the Eurobond.
This is the latest in a series of borrowings that has the country in the HIPC bracket.
HIPC are a group of 38 developing countries, with the exclusion of Ghana for now, with high levels of poverty and debt overhang.
According to the United Nations and World Bank, any time a country’s public debt hits or crosses 70 percent of its gross domestic product (GDP), then that country can be described as highly indebted, making it difficult for that country to settle its debts on time.
While not official, Ghana has fallen in that category with the country’s debt stock reaching an alarming rate of GH¢ 94,5 billion, representing more than 70 percent of GDP of ¢ 146,68 billion (US38,648 billion).
Despite this, and the shooting public debt, pointing to Ghana re-degenerating into HIPC status, Governor of the Bank of Ghana (BoG), Dr Henry Wampah, has stated categorically the country is far from that tag.
Ghana exited HIPC in 2006.
“The country’s current debt stock does not mean Ghana is now HIPC. It is only government that can declare Ghana HIPC,” Wampah said at a media conference, albeit unconvincingly.
“To go in HIPC is a conscious decision by a country. You can say that it (Ghana’s debt) has reached levels of pre-HIPC levels but you can’t say we are HIPC.
“To go HIPC is a decision by government; it’s not automatic that at some level you should go HIPC,” the apex bank boss added in a cryptic analysis.
The recent Eurobond suggests expert warnings Ghana’s debt status could worsen were not heeded.
Earlier this year, the Managing Director of the International Monetary Fund (IMF), Christine Largard, warned Ghana could be taking on too much debt in dollars through the issuance of the Eurobond.
She said the practice had the potential to further harm the country’s economy.
Speaking on the sidelines of the ‘Africa Rising’ conference in Maputo, Mozambique, Largard said increasing yields on the bonds indicated investors saw the bonds as high risks.
“Probably to those two messages [high yields and risks], the government [of Ghana] should be attentive and cautious about overloading the country with too much debt,” she was quoted as saying.
Meanwhile, the country’s latest Eurobond, might have been oversubscribed, exceeding $2 billion at a coupon rate of 10,75 percent compared to a target of $1 billion.
Minister of Finance, Seth Terkper, was upbeat.
“This represents an over-subscription of more than 100 percent, indicating the high appetite for Ghana’s credit,” said Terkper.
The Eurobond is however a series of borrowings suggesting an avid inclination to loans, much to the outcry of the public that is of the view that the country’s debt has now reached unsustainable limit.
The Member of Parliament for New Juaben South in the Eastern Region, Dr Mark Assibey-Yeboah, described the coup rate on the latest Eurobond as the highest in Africa.
It is said to be the highest yield on a Eurobond issue ever paid by an African country.
“It is embarrassing, to say the least. How can a country like Poland get a yield of 0,94 percent on the same day that Ghana issued the Eurobond?” he asked.
He added fellow African country Angola, recently postponed plans for a $1,5 billion bond to await better market conditions. Even Zambia, with all of its problems, got a yield of 9,37 percent.
Government has informed Parliament that their indicative yield was in the range of 8,5 percent to 9 percent but because the major credit rating agencies had downgraded Ghana to B1 or B-, six levels below investment grade, the government could not venture into the market with the time-tested Sovereign Guarantee.
Comparing the current Eurobond to the first Eurobond of $750 million, Assibey-Yeboah argued, “The first Eurobond issue with a ‘naked’ Sovereign Guarantee attracted a yield of 8,5 percent. At the time, our credit rating under President (John) Kufuor was B3 or B+.
“We went to the market then without a World Bank Insurance cover because our macroeconomic fundamentals were strong, our rating was very good and our debt was sustainable. Even though the global credit crunch was rife in 2007 and average LIBOR was 5,251. We only paid a little premium,” said the legislator.
In the case of the just-issued Eurobond, he lamented that Ghana’s Sovereign Guarantee was of no value.
He attributed to the country’s recent deteriorated ratings and debt unsustainability.
Nii Emma, a PhD student of Development Economics at the University of Ghana, appealed to the government not to misspend the money.
Controversy surrounds last year’s issues as $1 billion sourced from the international financiers could not be accounted for.
“We want government to tell the Ghanaian people what actual use they will put the money to. The sad but plain truth is that the managers of the country have been manifestly careless in going to the bond market at this material time.
“Notwithstanding, government must not be callous in spending the money for after all it is the overburdened citizens of this country who will have to pay back the careless borrowing of government when the time is due,” said Emma.
A renowned economist, Dr Mahamudu Bawumia, lamented that the increase in Ghana’s debt had placed a major burden on public finances with regard to interest payments on the debt.
Interest payments on domestic and external debt declined from 7,5 percent of GDP in 2000 to 2,3 percent by the end of 2008.
Since then, interest payment has increased to 5,1 percent of GDP in 2013, and would reach 6,5 percent of GDP by the end of 2014.
“The increase in interest payments by 2,8 percent of GDP, between 2008 and 2013, has taken away critical fiscal space that was available to the government, and that was created as a matter of deliberate strategy and policy choices,” said Bawumia.
BoG statistics suggest the country’s external debt stock has increased by $1,28 billion between May and June and currently stands at $15,62 billion (GHc58.6 billion) representing more than 40 percent of GDP, while total domestic debt stock also increased by $53,33 million during the period.
Sampson Amoah, an Accra-based social commentator, lamented the country’s economic prospects characterized by the GDP reaching its lowest in 14 years and the plummeting local currency.
IMF, he pointed out, had predicted the country’s economic growth would fall to as low as 3,5 percent this year.
In addition, the Ghana Statistical Service’s (GSS) first quarter GDP report for 2015, indicated the economy dropped from $48,6 billion in 2013 to $38,3 billion last year at market exchange rates.
The considerable drop in the size of the economy in 2014 was due to the exchange rate depreciation, which saw the Cedi decline in value by more than 30 percent against the United States Dollar during the period.
The country’s economy has slowed sharply in the last two years, hit by a fall in global commodity prices that have hurt its gold, cocoa and oil exports.
“All this will have will have repercussions on the import-dominated economy,” Amoah said.
– CAJ News
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